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On January 1, 2020, a company purchased equipment and signed a 6 year mortgage note for $160,000 at 15%. The note will be paid in equal installments of $42,278 beginning January 1, 2021. On January 1, 2021, the journal entry to record the first installment payment will include a Group of answer choices debit to Interest Expense for $24,000 credit to Cash for $18,278 debit to Mortgage Payable for $42,278 credit to Mortgage Payable for $42,278

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Answer:

On January 1, 2021, the journal entry to record the first installment payment will include a

debit to Interest Expense for $24,000

Explanation:

a) Data and Calculations:

January 1, 2020:

Mortgage note payable = $160,000

Note payable period = 6 years

Interest rate  16%

January 1, 2021:

Annual interest expense = $24,000 ($160,000 * 15%)

Principal repayment = $18,278 (42,278 - 24,000)

Annual cash payment to the creditor = $42,278

Complete journal entries on January 1, 2021:

Debit to interest expense of $24,000

Debit to Mortgage Payable $18,278

Credit to Cash = $42,278

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