Kathleen Company issues a $30,000, 6%, 3-year installment note payable on January 1, 2004. The note requires that $10,000 of principal plus accrued interest be paid at the end of each year on December 31. The issuer's journal entry to record the second annual interest payment (on December 31, 2005) would include:
A) A debit to Interest Expense for $1,800.
B) A debit to Interest Expense for $1,200.
C) A credit to Cash for $11,800.
D) A credit to Cash for $10,000.
E) A debit to Notes Payable for $1,200.
Ans: B) A debit to Interest Expense for $1,200.
Business
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