On January 1, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1 would include a
A) debit to Interest Expense for $11,550
B) credit to Interest Payable for $11,550
C) credit to Notes Payable for $165,000
D) debit to Notes Payable for $165,000

Question

Quizplus · Accepted Answer

The journal entry to record the issuance of the installment note for cash on January 1 would include a debit to Cash for $165,000 and a credit to Notes Payable for $165,000. This is because the Gemstone Company received $165,000 in cash from the bank and, in return, issued a note to repay the bank the principal plus interest over the next 10 years. The interest expense and interest payable will be recorded when the first payment is made at the end of the fiscal year.

On January 1, Gemstone Company Obtained a $165,000, 10-Year, 7