On January 1,Year 1,Stratton Company borrowed $100,000 on a 10-year,7% installment note payable.The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years.The required general journal entry to record the first payment on the note on December 31,Year 1 is:
A)Debit Interest Expense $7,000;debit Notes Payable $7,238;credit Cash $14,238.
B)Debit Notes Payable $7,000;debit Interest Expense $7,238;credit Cash $14,238.
C)Debit Notes Payable $10,000;debit Interest Expense $7,000;credit Cash $17,000.
D)Debit Notes Payable $14,238;credit Cash $14,238.
E)Debit Notes Payable $10,000;debit Interest Expense $4,238;credit Cash $14,238.

Question

Quizplus · Accepted Answer

The interest expense for the first year is $7,000 (7% of $100,000). The remaining portion of the payment reduces the principal, which is $7,238 ($14,238 total payment - $7,000 interest).

On January 1,Year 1,Stratton Company Borrowed $100,000 on a 10-Year,7