On January 1, 2021, Corvallis Carnivals borrows $10,000 to purchase a delivery truck by agreeing to a 6%, three-year loan with the bank. Payments of $304.22 are due at the end of each month, with the first installment due on January 31, 2021. Record the issuance of the note payable and the first monthly payment.

The journal entries are as follows:

(i) On January 1, 2021

Delivery Truck A/c Dr. $10,000

To 6% loan note payable $10,000

(To record the issuance of note payable)

(ii) On January 31, 2021

6% loan note payable A/c Dr. $254.22

Interest expense A/c Dr. $50

To cash $304.22

(To record the first month payment)

Workings:

Interest expense = $10,000 * 6% * (1/12)

= $50