On January 1, 2021, Tropical Paradise borrows $43,000 by agreeing to a 6%, five-year note with the bank. The funds will be used to purchase a new BMW convertible for use in promoting resort properties to potential customers. Loan payments of $831.31 are due at the end of each month with the first installment due on January 31, 2021.
Required:
Record the issuance of the installment note payable and the first two monthly payments.

Answer and Explanation:

The Journal entry with their narrations is shown below:-

1. Cash  Dr,                          $43,000

   To Notes Payable                            $43,000

(Being Cash is recorded)

2. Interest expenses Dr,    $215

($43,000 × 6% ÷ 12)

Notes payable Dr,            $616.31

       To Cash                                            $831.31

(Being  Interest expenses is recorded)

3. Interest expenses Dr,    $211.92

($43,000 - $616.31) × 6% ÷ 12)

Notes payable Dr,            $619.39

       To Cash                                            $831.31

(Being Interest expenses is recorded)

Therefore we have recorded the issuance of the installment note payable and the first two monthly payments.

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