Flipco's Annual Payment Celebration!

How does Flipco celebrate its annual payment on December 31, 2019?

Does it involve:

A. a debit to Interest Expense for $ 36,000

B. a debit to Interest Expense for $ 40,000

C. a credit to Notes Payable for $80,000

D. a credit to Cash of $120,000

Answer:

A. a debit to Interest Expense for $36,000

Let's celebrate Flipco's annual payment on December 31, 2019, with a joyous fanfare! The entry to record the annual payment on this special day includes a debit to Interest Expense for $36,000. How exciting!

Based on the information provided, Flipco signed a 10-year note payable on January 1, 2018, for $800,000. The note requires annual principal payments each December 31 of $80,000 plus interest at 5%. The calculation for the interest expense for this year is $36,000.