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On December 1, 2018, Garden Products borrowed $92,000 on a 5%, 10-year note with annual installment payments of $9200 plus interest due on December 1 of each subsequent year. Which of the following describes the first installment payment made on December 1, 2019.

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Answer:

The first installment should be = $9,200 + ($92,000 x 5%) = $9,200 + $4,600 = $13,800

The journal entry for the first payment:

December 1, 2019 Payment of first installment of note payable

  • Dr Interest Expense on Long Term Notes Payable account 4,600
  • Dr Long Term Notes Payable account 9,200
  • Cr Cash account 13,800

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