Question

On March 1, 2018, Mandy Services issued a 5% long term notes payable for $18,000. It is payable over a 3 year term in $6,000 principal installments on March 1 of each year, beginning March 1, 2019. Each yearly installment will include both principal repayment of $6,000 and interest payment for the preceding one year period. What is the amount of total cash payment that Mandy will make on March 1, 2019?A. 6450B. 18000C. 6000D. 6900

Answer 1

D) $6,900

Step-by-step explanation:

The first annual payment includes a $6,000 principal repayment + $900 interest (= $18,000 x 5%). Therefore the total amount of the cash payment will be $6,000 + $900 = $6,900.

The journal entry would be as follows:

March 1, 2019, first annual payment

• Dr Interest Expense account 900
• Dr Notes Payable Account 6,000
• Cr Cash account 6,900