Question

On November 1, 2017, Norwood borrows $510,000 cash from a bank by signing a five-year installment note bearing 9% interest. The note requires equal payments of $131,116 each year on October 31. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)

Required:

1. Complete an amortization table for this installment note.

2. Prepare the journal entries in which Norwood records the following:

(a) Accrued interest as of December 31, 2017 (the end of its annual reporting period).

(b) The first annual payment on the note.

Answer 1

Norwood
Note Amortization Schedule
Date	Annual Installments	Interest on liability	Reduction in Notes payable	Note liability
1-Nov-17				$   510,000
31-Oct-18	$      131,116	$   45,900	$              85,216	$   424,784
31-Oct-19	$      131,116	$   38,231	$              92,885	$   331,899
31-Oct-20	$      131,116	$   29,871	$            101,245	$   230,653
31-Oct-21	$      131,116	$   20,759	$            110,357	$   120,296
31-Oct-22	$      131,116	$   10,820	$            120,296	$              (0)

See the another table given below solved with 2 decimal places

Norwood
Note Amortization Schedule
Date	Annual Installments	Interest on liability	Reduction in Notes payable	Note liability
1-Nov-17				$                510,000
31-Oct-18	$       131,116.00	$ 45,900.00*	$     85,216.00	$          424,784.00
31-Oct-19	$       131,116.00	$ 38,230.56	$     92,885.44	$          331,898.56
31-Oct-20	$       131,116.00	$ 29,870.87	$   101,245.13	$          230,653.43
31-Oct-21	$       131,116.00	$ 20,758.81	$   110,357.19	$          120,296.24
31-Oct-22	$       131,116.00	$ 10,819.76**	$   120,296.24	$                       0.00

*$510000 x 9%

**Interest amount was $10,826.64 (120296.24 x 9%) but reduced to 10819.76 due to round off difference.

Journal entries
Transaction	Date	General Journal	Debit	Credit
(a)	31-Dec-17	Interest Expense	$   7,650.00*
		Interest Payable		$ 7,650.00
		(Interest accrued for 2 months on note)
(b)	31-Oct-18	Interest Expense	$ 38,250.00**
		Interest Payable	$   7,650.00
		Notes payable	$       85,216
		cash		$ 131,116
		(First installment of notes payable)

*(510000 x 9%)/12*2       -- 2 months interest will be accrued and recorded as expense.

**Since interest for 2 months was already recorded, interest expense for 10 months will be recorded in 2018 and rest will be adjusted by interest payable account.