On October 1,a $30,000,6%,three-year installment note payable is issued by a company.The note requires that $10,000 of principal plus accrued interest be paid at the end of each year on September 30.The issuer's journal entry to record the second annual interest payment would include:
A)A debit to Interest Expense for $1,800.
B)A debit to Interest Expense for $1,200.
C)A credit to Cash for $11,800.
D)A credit to Cash for $10,000.
E)A debit to Notes Payable for $1,200.

Question

Quizplus · Accepted Answer

The second annual interest payment is for $1,800 ($30,000 x 6% x 1 year). The entry to record the payment would be:
Debit: Interest Expense - $1,200 (accrued interest for the year)
Debit: Notes Payable - $10,000 (principal payment)
Credit: Cash - $11,200 (($10,000 + $1,200) interest payment plus principal payment))

On October 1,a $30,000,6%,three-Year Installment Note Payable Is Issued by a Company.The