Samco signed a 5 -year note payable on January 1, 2018 , of $ 475 comma 000. The note requires annual principal payments each December 31 of $ 95 comma 000 plus interest at 9 %. The entry to record the annual payment on December 31, 2021 , includes A. a debit to Interest Expense for $ 17 comma 100. B. a debit to Interest Expense for $ 42 comma 750. C. a credit to Cash of $ 137 comma 750. D. a credit to Notes Payable for $ 95 comma 000.

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Business

Castillo

20 August, 01:49

Samco signed a 5 -year note payable on January 1, 2018 , of $ 475 comma 000. The note requires annual principal payments each December 31 of $ 95 comma 000 plus interest at 9 %. The entry to record the annual payment on December 31, 2021 , includes A. a debit to Interest Expense for $ 17 comma 100. B. a debit to Interest Expense for $ 42 comma 750. C. a credit to Cash of $ 137 comma 750. D. a credit to Notes Payable for $ 95 comma 000.

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Alyson Hayden · Answer 1

Option A, a debit to Interest Expense for $ 17 comma 100 is correct

Explanation:

The principal amount on 1st January 2021 needs to be established since that would be the amount left after 2018,2019,2020 principals have been repaid

Principal at 1st January 2021=$475,000 - ($95,000*3) = $190000

Interest on principal in 2021=$190000 * 9%=$17100

Total repayment in 2021=principal plus interest=$95,000+$17,100=$ 112,100.00

The $95,000 would be a debit to notes payable not credit hence option is wrong.

Only option A, a debit of $17,100 to interest expense is correct