S 10-11 Computing payments for an installment note LO C1

On January 1, 2017, MM Co. borrows $390,000 cash from a bank and in return signs an 4% installment note for five annual payments of $87,605 each, with the first payment due one year after the note is signed. (Table B.3) (Use PV factors from table provided.) 1. Prepare the journal entry to record issuance of the note.

2. For the first $87,605 annual payment at December 31, 2017, what amount goes toward interest expense? What amount goes toward principal reduction of the note?