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 Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.
B) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000.
C) Debit Notes Payable $14,238; credit Cash $14,238.
D) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
E) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.

Question

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 Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.
B) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000.
C) Debit Notes Payable $14,238; credit Cash $14,238.
D) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
E) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.

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