On March 1, Brutto Corp. issues a 3 year, 5%, $60,000 note payable. The terms of the note include monthly blended principal and interest payments of $1,799. The entry to record the first instalment payment will include a
A) debit to Notes Payable of $1,799.
B) debit to Cash of $1,799.
C) credit to Interest Expense of $3,000.
D) debit to Interest Expense of $250.

Question

Quizplus · Accepted Answer

The first installment payment includes both principal and interest. The interest for the first month is calculated as 5% annual interest on $60,000, which is $250 for one month. Therefore, the entry will include a debit to Interest Expense of $250.