Journalize the first note payment on December 31, 2018.

Question: Accounting for a long-term note payable

On January 1, 2018, Lakeman-Fay signed a $1,500,000, 15-year, 7% note. The loan

required Lakeman-Fay to make annual payments on December 31 of $100,000

principal plus interest.

Requirements

1. Journalize the issuance of the note on January 1, 2018.

2. Journalize the first note payment on December 31, 2018.

Solutions

Expert Solution

Step 1: Definition of notes

The note is a written contract in which one party promises to borrow the money from another party.

Step 2: Issue entry

Date	Particulars	Debit	Credit
January 1, 2018	Cash	$1,500,000
	7% Notes Payable		$1,500,000
	(Being entry of issue of notes)

This entry is passed for the issuance of notes payable.

Step 3: Issue entry

Date	Particulars	Debit	Credit
December 31, 2018	Interest Expense
	Notes Payable
	(To record annual interest expense)

December 31, 2018	7% Notes Payable	$205,000
	Cash		$205.000
	(Being entry for the first payment of note)

The following entry is passed on recording the first payment of the bonds with interest.

The cash account is debited with $1,500,000

Sahil Dangi answered 2 years ago

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