Entries for installment note transactions Chart of Accounts

Entries for installment note transactions Chart of Accounts Journal Final Question On January 1 the first day of the f scal year, Shier Company borrowed $79,000 by giving a seven-year, 12% installment note to ros Bank. The note reg es an payments of $17,310, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $9,480 and principal repayment of $7,830 al Required: A. Journalize the entries to record the foilowing transactions. Refer to the Chart of Accounts for exact wording of account titles. 1. Issued the installment note for cash on the first day of the fiscal year 2. Paid the first annual payment on the note B. Explain how the notes payable would be reported on the balance sheet at the end of the first year

Solution

A. Please see below for the solution and logic for that solution

1. As Shiller Company is receiving cash against issuing the note so cash account should be debit and Notes Payable account should be credit as below:

2. Now since we are paying back the first installment of the borrowing, we need to adjust it against 3 accounts which are interest expense (Debit as it is an expense), notes payable (Debit as it is a reduction in liability) and cash(Credit as going out) as below:

B. Now at the end of the fiscal year in terms of liability we have Notes payable (Remaining Borrowing ( $79,000-$7,830= $71,170)), and in terms of asset we have remaining cash ( $ 79,000- $ 17,310 =$61,690) and assuming we do not have any trade activity we only have interest expense which will be counted as loss so it will be shown as the asset under \'accumulated loss\'.

Journal

Date	Account	Debit ($)	Credit ($)
01/01	Cash	79,000
01/01	Notes Payable		79,000
Narration	To record loan against 12% note