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 second instalment payment will include a
A)debit to Notes Payable of $822.
B)debit to Cash of $1,217.
C)debit to Interest Expense of $400.
D)credit to Interest Expense of $395.

Question

Quizplus · Accepted Answer

The second installment payment will include a debit to Notes Payable for the principal portion of the payment. The interest portion of the first payment is $400, so the principal portion is $817. For the second payment, the interest will be slightly less, and the principal portion will be $822.