On the first day of the fiscal year, Shiller Company borrowed $85,000 by giving a seven–year, 7% installment note to Soros Bank. The note requires annual payments of $15,772, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $5,950 and principal repayment of $9,822.
Journalize the entries to record the following:
a1. Issued the installment note for cash on the first day of the fiscal year.
a2. Paid the first annual payment on the note. For a compound transaction, if an amount box does not require an entry, leave it blank.
b. How would the nones payable be reported on the balance sheet at the end of the fiscal year?
Solution:
A1 - Journal entry at the time of issue of installment note for cash:
Bank A/c Dr $85,000
To Notes Payable Cr $85,000
A2 – Journal entry at the time of first annual payment:
Notes Payable A/c Dr $9,822
Interest Expense A/c Dr $5,950
To Bank A/c Cr $15,772
B – Notes payable to be reported in balance sheet at the end of fiscal year:
Notes payable end balance = $85,000 - $9,822 = $75,178
Interest for 2nd year = $75,178 * 7% = $5,262
Installment amount for 2nd year = $15,772
Principal repayment for 2nd year = $15,772 - $5,262 = $10,510
Therefore out of $75,178 notes payable, $10,510 is payable within 1 year. There $10510 will be shown in balance sheet as current liabilities and remaining $64,668 will be shown in balance sheet as long term liability.
On the first day of the fiscal year, Shiller Company borrowed $85,000 by giving a seven–year