Chapter 14, Problem 13E

To determine

Accounting treatment on issuance of notes payable:

TheNote payable issued on borrowing of money may have a payment obligation of fixed amount at a regular interval over the life of note payable. In such cases, the amount borrowed shall be debited to the cash account and a liability is created by crediting the notes payable account to be repaid at a regular interval of time along with interest.

After the issuance of notes payable, the fixed amount is paid at regular interval which need to be divided in to two parts i.e. interest expenses and principal repayment (as mentioned in amortization chart). In such cases, thee interest expenses account is debited with the amount of interest computed and Notes payable account is debited with the principal repayment and the credit being given to the cash account.

The Journal entries for the issuance of notes and annual amount repayments.