On January 1, 2019, a company borrows $20,000 cash by signing a four-year, 7% installment note. The note requires four equal payments of $5,905, consisting of accrued interest and principal on December 31 of each year from 2019 through 2022. Prepare the journal entries for the company to record the note's issuance and the four payments. (Round your intermediate calculations and final answers to the nearest dollar amount.)

Issue

Cash (debit) $20,000

Note Payable (credit) $20,000

2019

J1

Finance Charge $1,400 (debit)

Note Payable $1,400 (credit)

J2

Note Payable (debit) $5,905

Cash (credit) $5,905

2020

J1

Finance Charge $1,498 (debit)

Note Payable $1,498 (credit)

J2

Note Payable (debit) $5,905

Cash (credit) $5,905

2021

J1

Finance Charge $1,596 (debit)

Note Payable $1,596 (credit)

J2

Note Payable (debit) $5,905

Cash (credit) $5,905

2022

J1

Finance Charge $1,708 (debit)

Note Payable $1,708 (credit)

J2

Note Payable (debit) $5,905

Cash (credit) $5,905

Explanation:

First Constract an Amortization Schedue

Using a Financial Calculator, the Parameters can be set as:

Pv = $20,000

n = 4

i = 7%

Pmt = $5,905

P/yr = 1

Fv = 0

So, When the Note is issued the record will be as follows:

Cash (debit) $20,000

Note Payable (credit) $20,000

Interest on the Note for the year end 2019 will be

Finance Charge $1,400 (debit)

Note Payable $1,400 (credit)

Payment on the Note for the year end 2019 will be

Note Payable (debit) $5,905

Cash (credit) $5,905