Question

On January 1, 2018, MM Co. borrows $330,000 cash from a bank and in return signs an 4% installment note for five annual payments of $74,127 each, with the first payment due one year after the note is signed. 1. Prepare the journal entry to record issuance of the note 2. For the first $74127 annual payment at December 31, 2018, what amount goes toward interest expense? What amount goes toward principal reduction of the note? & Answer is complete but not entirely correct Complete this question by entering your answers in the tabs below Required 1 Required 2 Prepare the journal entry to record issuance of the note. No Date General Journal Debit Credit Jan 01 Cash 330,000 Notes payable 330,000

Answer 1

Answer

• Requirement 1 is already complete and correct
• Requirement 2

Interest Expense will be the annual interest accrued on the notes payable.

Interest expense = $ 330,000 x 4% = $ 13,200

Installment amount = $ 74,127

Hence, Principal reduction will be = 74127 – 13200 = $ 60,927

• Answer

Interest Expense	$                  13,200.00
Principal Reduction	$                  60,927.00

--For understanding purpose – Journal entry

31-Dec-18	Interest Expense	$                  13,200.00
	Notes Payable	$                  60,927.00
	Cash		$                  74,127.00