On January 1, 2014, 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, 2014 would include:
A) a debit to Interest Expense of $11,550
B) a credit to Interest Payable of $11,550
C) a credit to Notes Payable of $165,000
D) a debit to Notes Payable of $165,000

Question

Quizplus · Accepted Answer

The issuance of the installment note involves receiving cash and creating a liability. Therefore, the correct entry would be to credit Notes Payable for the amount of the note, $165,000.

On January 1, 2014, Gemstone Company Obtained a $165,000, 10-Year