Questions: On January 1, 2026, Eagle Company borrows 100,000 cash by signing a four-year, 7% installment note. The note requires four equal payments of 29,523, consisting of accrued interest and principal on December 31 of each year from 2026 through 2029. Prepare the journal entries for Eagle to record the note's issuance and each of the four payments. Note: Round your intermediate calculations and final answers to the nearest dollar amount. Record the issuance of the note on January 1, 2026.

Solution Steps

To solve this problem, we need to prepare journal entries for the issuance of the note and each of the four payments. The issuance entry will record the cash received and the note payable. For each payment, we will calculate the interest expense for the year, reduce the note payable by the principal portion of the payment, and record the cash payment.

1. Issuance of the Note: Record the cash received and the note payable.
2. Annual Payments: For each year, calculate the interest expense (beginning balance of the note multiplied by the interest rate), determine the principal portion of the payment (total payment minus interest expense), and update the note payable.

On January 1, 2026, Eagle Company borrows \( \$100,000 \) by signing a four-year, \( 7\% \) installment note. The journal entry for the issuance of the note is as follows:

• Debit: Cash \( = \$100,000 \)
• Credit: Note Payable \( = \$100,000 \)

For the first payment, we calculate the interest expense and the principal payment:

• Interest Expense for 2026: \[ \text{Interest Expense} = 100,000 \times 0.07 = 7,000 \]
• Principal Payment: \[ \text{Principal Payment} = 29,523 - 7,000 = 22,523 \]
• Remaining Principal after the first payment: \[ \text{Remaining Principal} = 100,000 - 22,523 = 77,477 \]

The journal entry for the first payment is:

• Debit: Interest Expense \( = 7,000 \)
• Debit: Note Payable \( = 22,523 \)
• Credit: Cash \( = 29,523 \)

For the second payment, we again calculate the interest expense and the principal payment:

• Interest Expense for 2027: \[ \text{Interest Expense} = 77,477 \times 0.07 \approx 5,423 \]
• Principal Payment: \[ \text{Principal Payment} = 29,523 - 5,423 \approx 24,100 \]
• Remaining Principal after the second payment: \[ \text{Remaining Principal} = 77,477 - 24,100 \approx 53,377 \]

The journal entry for the second payment is:

• Debit: Interest Expense \( \approx 5,423 \)
• Debit: Note Payable \( \approx 24,100 \)
• Credit: Cash \( = 29,523 \)

Final Answer