Refer to QS 10-14 and separately analyze transactions 1 and 2, involving issuance of the note and its first annual payment, by showing their effects on the accounting equation—specifically, identify the accounts and amounts (including + or −) for each transaction.

QS 10-14

On January 1, MM Co. borrows $340,000 cash from a bank and in return signs an 8% installment note for five annual payments of $85,155 each.

1. Prepare the journal entry to record issuance of the note.

2. For the first $85,155 annual payment at December 31, what amount goes toward interest expense? What amount goes toward principal reduction of the note?