On March 1, Broke Corp. issues a 5 year, 8%, $60,000 note payable. The terms of the note include monthly blended principal and interest payments of $1,217. The entry to record the first instalment payment will include a
A)debit to Notes Payable of $1,217.
B)debit to Cash of $1,217.
C)credit to Interest Expense of $4,800.
D)debit to Interest Expense of $400.

Question

Quizplus · Accepted Answer

The first installment payment includes both principal and interest. The interest expense for the first month is calculated as 8% annual interest on the $60,000 note, divided by 12 months, which equals $400. Thus, the entry will include a debit to Interest Expense of $400.