Question

On November 1, 2019, Norwood borrows $590,000 cash from a bank by signing a five-year installment note bearing 7% interest. The note requires equal payments of $143,895 each year on October 31.

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, 2019 (the end of its annual reporting period).
(b) The first annual payment on the note.

Answer 1

Requirement 1:

Face Value of Note = $590,000
Annual Interest Rate = 7%
Annual Payment = $143,895
Number of Payments = 5

Date Nov. 01, 2019 Oct. 31, 2020 Oct. 31, 2021 Oct. 31, 2022 Oct. 31, 2023 Oct. 31, 2024 $ $ $ $ $ Reduction in Carrying Value of Cash Paid Interest Expense Carrying Value Note $ 590,000 143,895$ 41,300 $ 102,595 $ 487,405 143,895$ 34,118 $ 109,777 $ 377,628 143,895 $ 26,434 $ 117,461 $ 260,167 143,895 $ 18,212 $ 125,683 $ 134,484 143,895 $ 9,411 $ 134,484 $

Requirement 2:

Credit Date Dec. 31, 2019 Debit 6,883 17,100 23,983 General Journal Interest Expense ($590,000* 7% * 2/12) Notes Payable Interest Payable ($143,895 * 2/12) Interest Payable Interest Expense ($590,000 * 7% * 10/12) Notes Payable Cash Oct. 31, 2020 23,983 34,417 85,495 143,895