Question

Accounting for a long-term note payable

On January 1, 2018, Lakeman-Fay signed a \(1,500,000, 15-year, 7% note. The loan

required Lakeman-Fay to make annual payments on December 31 of \)100,000

principal plus interest.

Requirements

1. Journalize the issuance of the note on January 1, 2018.

2. Journalize the first note payment on December 31, 2018.

Short answer

1. The cash is debited with $1,500,000 and notes payable credited with $1,500,000.
2. The interest expenses and principal payment debited with $105,000 and $100,000.The cash account is credited with $205,000.

Step-by-step solution

Issuance of note payable

Date	Particulars	Debit	Credit
January 1, 2018	Cash	$1,500,000
	7% Notes Payable		$1,500,000
	(To record the issue of notes)

Journal entry for interest payment:

Date	Particulars	Debit	Credit
December 31, 2018	Interest expenses	$105,000
	Principal payment	$100,000
	Cash		$205,000
	(To record the first payment of note)