Question

Tolino Company signed a 5-year note payable on January 1, 2019, of $200,000. The note requires annual principal payments each December 31 of $40,000 plus interest of 6%. The entry to record the annual payment on December 31, 2020, includes:

Answer 1

The following journal entry will be passed in the books of accounts and the interest expense is calculated to an amount of $9600

Explanation:

Given data:

amount of note: $200000, annual principal payments to be made each year at December 31st = $40000, interest amount to be charged = 6 percent, duration of note = 5 years

the following calculation is made in order to find out the amount of interest:

Amount of note minus principal payment multiply with rate of interest

now, putting the figures in formula:

interest = 200000 minus 40000 = $160000 multiply with .06 = $9600

Thus, the interest amount = $9600

The interest expense will be debited with an amount of $9600 in the books of accounts.