On January 1, the first day of the fiscal year, Shiller Company borrowed $85,000 by giving a seven-year, 7% installment note to Soros Bank. The note requires annual payments of $15,772, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $5,950 and principal repayment of $9,822.

Required:

A. Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles.

1. Issued the installment note for cash on the first day of the fiscal year

2. Paid the first annual payment on the note.

B. Explain how the notes payable would be reported on the balance sheet at the end of the first year.

CHART OF ACCOUNTS

Shiller Company

ASSETS

110Cash

111Petty Cash

121Accounts Receivable

122Allowance for Doubtful Accounts

126Interest Receivable

127Notes Receivable

131Merchandise Inventory

141Office Supplies

142Store Supplies

151Prepaid Insurance

191Land

192Store Equipment

193Accumulated Depreciation-Store Equipment

194Office Equipment

195Accumulated Depreciation-Office Equipment

LIABILITIES

210Accounts Payable

221Salaries Payable

231Sales Tax Payable

232Interest Payable

241Notes Payable

251Bonds Payable

252Discount on Bonds Payable

253Premium on Bonds Payable

EQUITY

311Common Stock

312Paid-In Capital in Excess of Par-Common Stock

315Treasury Stock

321Preferred Stock

322Paid-In Capital in Excess of Par-Preferred Stock

331Paid-In Capital from Sale of Treasury Stock

340Retained Earnings

351Cash Dividends

352Stock Dividends

390Income Summary

REVENUE

410Sales

610Interest Revenue

611Gain on Redemption of Bonds

EXPENSES

510Cost of Merchandise Sold

515Credit Card Expense

516Cash Short and Over

521Sales Salaries Expense

522Office Salaries Expense

531Advertising Expense

532Delivery Expense

533Repairs Expense

534Selling Expenses

535Rent Expense

536Insurance Expense

537Office Supplies Expense

538Store Supplies Expense

541Bad Debt Expense

561Depreciation Expense-Store Equipment

562Depreciation Expense-Office Equipment

590Miscellaneous Expense

710Interest Expense

711Loss on Redemption of Bonds