Flipco signed a 10-year note payable on January 1, 2018, of $ 800, 000. The note requires annual principal payments each December 31 of $ 80, 000 plus interest at 5%. The entry to record the annual payment on December 31, 2019, includes: A. a debit to Interest Expense for $ 36, 000.
B. a debit to Interest Expense for $ 40, 000.
C. a credit to Notes Payable for $ 80, 000.
D. a credit to Cash of $ 120, 000.

A. a debit to Interest Expense for $ 36, 000

Explanation:

Based on the information given we were told that Flipco has note payable on January 1, 2018, of the amount of $800,000 and on December 31 we were told that the loan requires annual principal payments of the amount of $80,000 in addition with 5% interest. This means that the Journal entry to record the transaction on December 31, 2019 will includes a Debit to interest expense for $36,000 calculated as :

Interest expense= $800,000-$80,000

Interest expense=( $720,000* 5%* 12/12)

Interest expense =$36,000

Therefore the Journal entry to record the annual payment on December 31, 2019 will includes :

A Debit to interest expense for $36,000

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