Problem: On January 1, Year 1, S Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require S Company to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, Year 1 is: a) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. b) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. c) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000. d) Debit Notes Payable $14,238; credit Cash $14,238.

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Problem Details

On January 1, Year 1, S Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require S Company to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, Year 1 is:

a) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.

b) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.

c) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000.

d) Debit Notes Payable $14,238; credit Cash $14,238.

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Based on our data, we think this problem is relevant for Professor Healy's class at EKU.