Question

On November 1, 2019, Norwood borrows $420,000 cash from a bank by signing a five-year installment note bearing 6% interest. The note requires equal payments of $99,706 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

Answer:

Required 1:

There will be rounding differences within +/-$3.

Period Ending Date	Beginning Balance	Debit Interest Expense	+ Debit Notes Payable	= Credit Cash	Ending Balance
10/31/2020	420,000	25,200	74,506	99,706	345,494
10/31/2021	345,494	20,730	78,976	99,706	266,518
10/31/2022	266,518	15,991	83,715	99,706	182,803
10/31/2023	182,803	10,968	88,738	99,706	94,065
10/31/2024	94,065	5,644	94,062	99,706	3
Total		78,533	419,997	498,530

Beginning Balance = Prior ending Balance

Debit Interest expense = 6% × Beginning Balance

Credit Cash = Computed

Ending Balance = Beginning Balance - Debit Note Payable

Required :2

2. a Entry :Accrued interest as of December 31, 2019 (the end of its annual reporting period).

31-Dec-19	Interest Expense	4200
	Interest Payable		4200

Calculation:

Accrued Interest on notes payable = 25,200*2/12 = 4,200

2 b. Entry The first annual payment on the note.

31-Oct-20	Interest Payable	4,200
	Notes Payable	74,506
	Interest Expense	21,000
	Cash		99,706

Calculation
Interest Expense = 25,200- 4,200 = 21,000