In: Accounting
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.
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