On January 1, 2015, Bailey Company obtained an $125,000, seven year 5% installment note from First National Bank. The note requires annual payments of $21,602, with the first payment occurring on the last day of the fiscal year. The first payment consists of $6,250 interest and principal repayment of $15,352.
1. Journalize the following entries:
For a compound transaction, if an amount box does not require an entry, leave it blank or enter “0”.
a. Issued the installment notes for cash on January 1, 2015.
b. Paid the first annual payment on the note.
2. Determine the amount of interest expense on the note for the first year.