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23 August, 15:39

Flipco signed a 10-year note payable on January 1, 2016, of $800,000. The note requires annual principal payments each December 31 of $80,000 plus interest at 5%. The entry to record the annual payment on December 31, 2017, includesa. a debit to Interest Expense for $36,000. b. a debit to Interest Expense for $40,000. c. a credit to Notes Payable for $80,000. d. a credit to Cash of $120,000.

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  1. 23 August, 19:19
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    a debit to Interest Expense for $36,000

    Explanation:

    Data provided in the question

    Note payable amount = $800,000

    Interest payment = $80,000

    Interest rate = 5%

    So, the amount is

    = (Note payable amount - interest expense) * interest rate

    = ($800,000 - $80,000) * 5%

    = $720,000 * 5%

    = $36,000

    This amount would be debited to interest expense while recording the annual payment on December 31, 2017
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