Acompany borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. the first payment will record interest expense of $5,600 and will reduce principal by $9,542.
the journal entry to record this transaction will include a debit to which of the following accounts and for how much?

a. interest payable; $5,600
b. notes payable; $9,542
c. interest expense; $5,600
d. cash; $15,142

b. Notes Payable; $9,542

c. Interest Expense; $5,600

Explanation:

Given that

Borrowed amount = $70,000

Rate of interest = 8%

Time period = 6 years

Equal payments = $15,142

Interest expense = $5,600

And, principal reduced amount = $9,542

By above information, the following account should be debited

Interest expense = $5,600 and the note payable = $9,542 because for recording the first payment, the entry would be

Note payable A/c Dr $5,600

Interest expense A/c Dr $9,542

            To Cash A/c $15,142

(Being the first payment is recorded)

Since the interest is an expense and the note payable increase the liabilities so the same amount is debited while at the same time it reduced the cash balance so we debited the cash account

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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