On the First Day of the Fiscal Year, Hawthorne Company

question 95

Multiple Choice

On the first day of the fiscal year, Hawthorne Company obtained an $88,000, 7-year, 5% installment note from Sea Side Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to make the first annual payment due on the note would include a

• A) debit to cash for $15,208
• B) credit to notes payable for $10,808
• C) debit to interest expense for $4,400
• D) debit to notes payable for $15,208

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Definitions:

Corporation

A legal entity recognized by law as separate from its owners, providing them with limited liability and the ability to raise capital through the sale of shares.

Market Value

The current price at which an asset or service can be bought or sold in the open market.

Shareholders

Individuals or entities that own shares in a corporation, thus holding a portion of the company's stock and potentially having a claim on part of its assets and earnings.

Fair Market Value

The price at which an asset would trade in a competitive auction setting, reflecting the asset's worth under normal market conditions.