A five-year, 4%, $102,000 note payable is issued on January 1.Terms include equal annual instalment payments of $22,912.The entry to record the first instalment payment will include a
A)debit to Notes Payable of $18,832.
B)credit to Interest Expense of $4,080.
C)credit to Notes Payable of $22,912.
D)debit to Cash of $22,912.

Question

Quizplus · Accepted Answer

The first instalment payment includes both interest and principal. The interest for the first year is $4,080 (4% of $102,000), so the principal portion is $22,912 - $4,080 = $18,832, which is debited to Notes Payable.

A Five-Year, 4%, $102,000 Note Payable Is Issued on January