Knowee
Questions
Features
Study Tools

On January 1, 2024, Royal Paradise borrows $35,000 by agreeing to a 6%, five-year note with the bank. Loan payments of $676.65 are due at the end of each month with the first installment due on January 31, 2024. Required:Record the issuance of the installment note payable and the first two monthly payments. (Do not round intermediate calculations. Round your final answers to 2 decimal places. If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Question

On January 1, 2024, Royal Paradise borrows 35,000byagreeingtoa635,000 by agreeing to a 6%, five-year note with the bank. Loan payments of 676.65 are due at the end of each month with the first installment due on January 31, 2024. Required:Record the issuance of the installment note payable and the first two monthly payments. (Do not round intermediate calculations. Round your final answers to 2 decimal places. If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

...expand
🧐 Not the exact question you are looking for?Go ask a question

Solution 1

The issuance of the installment note payable and the first two monthly payments would be recorded as follows:

  1. January 1, 2024: When the loan is issued Debit: Cash 35,000Credit:NotesPayable35,000 Credit: Notes Payable 35,000 (To record the issuance of the note payable)

  2. January 31, 2024: First monthly payment Debit: Notes Payable 676.65Debit:InterestExpense676.65 Debit: Interest Expense 175 (calculated as 35,000∗6Credit:Cash35,000 * 6% / 12) Credit: Cash 851.65 (To record the first monthly payment)

  3. February 29, 2024: Second monthly payment Debit: Notes Payable 676.65Debit:InterestExpense676.65 Debit: Interest Expense 170.35 (calculated as (35,000−35,000 - 676.65) * 6% / 12) Credit: Cash $847 (To record the second monthly payment)

Please note that the interest expense decreases each month as the principal (Notes Payable) is paid down. The total payment (Cash) remains the same, but the portion that goes towards paying down the principal increases each month.

This problem has been solved

Solution 2

The issuance of the installment note payable and the first two monthly payments can be recorded as follows:

  1. On January 1, 2024, when the loan is taken, the entry would be:

    Debit: Cash 35,000Credit:NotesPayable35,000 Credit: Notes Payable 35,000

    This entry recognizes the inflow of cash from the loan and the corresponding liability.

  2. On January 31, 2024, when the first payment is made, the entry would be:

    Debit: Interest Expense 175(calculatedas175 (calculated as 35,000 * 6% / 12) Debit: Notes Payable 501.65(calculatedas501.65 (calculated as 676.65 - 175)Credit:Cash175) Credit: Cash 676.65

    This entry recognizes the payment of cash, the reduction in the liability, and the interest expense.

  3. On February 29, 2024, when the second payment is made, the entry would be:

    Debit: Interest Expense 172.08(calculatedas(172.08 (calculated as (35,000 - 501.65)∗6Debit:NotesPayable501.65) * 6% / 12) Debit: Notes Payable 504.57 (calculated as 676.65−676.65 - 172.08) Credit: Cash $676.65

    This entry recognizes the payment of cash, the reduction in the liability, and the interest expense.

Please note that the interest expense decreases each month as the outstanding balance of the loan decreases.

This problem has been solved

Similar Questions

A company borrows money as needed on the first day of the month and repays principal and interest on the last day of the budget period, if cash is available.  For the third quarter of the year, they borrowed $5,000 in July, $7,000 in August and $4,000 in June.  The interest rate is 1% per month.  Assuming enough money is available on June 30th to repay the debt, the total amount of interest due is $

Windsor Corporation borrows $100,000 from a bank on November 1, Year 1, by signing a 9 percent, six-month note for the amount borrowed plus accrued interest due six months later on May 1, Year 2. What is the interest expense per month on this note?Multiple Choice$1,200$3,000$750$1,000

Havier Corporation borrows $1 million from a bank on September 1, Year 1, by signing a 6 percent, nine-month note for the amount borrowed plus accrued interest due nine months later on June 1, Year 2. Which of the following is recorded on December 31, Year 1?Multiple Choice$20,000 credit to Interest Payable$20,000 credit to Notes Payable$25,000 debit to Interest Expense$20,000 credit to Cash PrevQuestion 5 linked to 6 of 18 Total5 6

On September 1, 2024, Hawaiian Airlines borrows $45 million, and records the full amount as Notes Payable (long-term). On December 31, 2024 (balance sheet date), Southwest determines $9 million of the note is due next year, while the remaining $36 million is due in two years. Record the entry to reclassify the current portion of long-term debt. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not millions. For example, $5.5 million should be entered as 5,500,000.)

Caddell Corporation borrows $100,000 from a bank on August 1, Year 1, by signing an 8 percent, six-month note for the amount borrowed plus accrued interest due six months later on February 1, Year 2. Which of the following is recorded on August 1, Year 1?Multiple Choice$100,000 credit to Cash$100,000 credit to Notes Payable$104,000 debit to Cash$104,000 debit to Notes Payable

1/1

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.