On January 1, 2012, Corvallis Carnivals borrows $20,000 to purchase a delivery truck by agreeing to a 7%, four-year loan with the bank. Payments of $478.92 are due at the end of each month, with the first installment due on January 31, 2012. Record the issuance of the note payable and the first monthly payment.

The journal entries are as follows

On January 1, 2012

Cash $20,000

To Note payable $20,000

(Being the issuance of the note payable is recorded)

On January 31, 2012

Interest expense $116.67

Note payable $362.25

To Cash $478.92

(Being the first monthly payment is recorded)

The interest expense is as follows

= Borrowed amount * monthly interest rate

= $20,000 * 0.5833%

= $116.67