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On January 1, 2015, Brooks Inc. borrows $90,000 from a bank and signs a 5% installment note requiring four annual payments of $25,381. Click here to see payment schedule. Record the first installment payment on December 31, 2015. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus. If more than one account needs to be debited or credited, enter the account titles alphabetically.

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Answer:

The journal entry which is to be recorded for the first installment payment on the note is shown below:

Explanation:

The journal entry is as on December 31, 2015

 Interest Expense A/c.................Dr  $4,500

Notes Payable A/c.......................Dr  $20,881

              Cash A/c..............................Cr   $25,381

Working Note:

Interest expense = Borrowed amount × 5%

= $90,000  × 5%

= $4,500

Note Payable = Cash - Interest expense

= $25,381 - $4,500

= $20,881

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