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12 February, 23:26

On January 1, 2018, Corvallis Carnivals borrows $28,000 to purchase a delivery truck by agreeing to a 6%, three-year loan with the bank. Payments of $851.81 are due at the end of each month, with the first installment due on January 31, 2018. Record the issuance of the note payable and the first monthly payment

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  1. 13 February, 01:13
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    Cash 28,000 debit

    Note payable 28,000 credit

    --to record signing of note payable--

    Interest expense 140 debit

    Note payable 711.41 debit

    Cash 851.81 credit

    --to record first installment--

    Explanation:

    When the note is issued we record the entry of cash and the liaiblity created when signing the promissory note with the bank. The truck is purchased in another transaciton with the supplier.

    Each payment will have an interest component and the principal amortization

    first payment:

    principal x rate x time = interest

    we have to make sure to express rate and time in the same metric.

    so 1 month = 1/12 of a year

    28,000 x 0.06 x 1/12 = 140 interest expense

    then the diffrence will be amortzation:

    851.81 - 140 = 711.41 amortization
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