On January 1, 2015, Eagle borrows $24,000 cash by signing a four-year, 8% installment note

On January 1, 2015, Eagle borrows $24,000 cash by signing a four-year, 8% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2015 through 2018.

Prepare the journal entries for Eagle to record the loan on January 1, 2015, and the four payments from December 31, 2015, through December 31, 2018.

Explanation:

		Payments
	(A)	(B)	(C)	(D)	(E)
Period Ending Date	Beginning Balance	Debit Interest Expense	Debit Notes payable	Credit Cash	Ending Balance
2015	$ 24,000	$ 1,920	$ 5,326	$ 7,246	18,674
2016	18,674	1,494	5,752	7,246	12,922
2017	12,922	1,034	6,212	7,246	6,710
2018	6,710	536*	6,710	7,246
Total		$ 4,984	$ 24,000	$ 28,984

*Adjusted for rounding

 

Cash

=

$24,000 / 3.3121 = $7,246

Beginning Balance = Prior Ending Balance

Debit Interest Expense = 8% × Beginning Balance

Debit Notes Payable = Credit Cash – Debit Interest Expense

Credit Cash = computed

Ending Balance = Beginning Balance – Debit Notes Payable