Answer:
The journal entry to record the first annual amount due is as follows:
Dr Interest expense $11,550
Dr Notes payable $11,942
Cr Cash $23,492
Being repayment of loan principal with interest
Explanation:
The interest payment implies an increase in expense which means the expense account must be debited , while the repayment of principal of $11,942 represents a reduction in amount owed to Guarantee Bank, hence it is also debited to notes payable account.
The sum of the two cash outflows is credited to cash account, since cash had in reduction due loan obligations being discharged as and when due.
The principal repayment means that the balance in the notes payable account is $153,058 ($165,000-$11,942)
