1)
Date | Account title | Debit | credit |
1 Jan 2021 | Machinery | 5,300,000 | |
Note payable | 5,300,000 | ||
2)
Dec 31 | Cash payment | Effective interest | Decrease in balance | Outstanding balance |
5,300,000 | ||||
2021 | 1671993 | 5300000*10%=530000 | 1671993-530000= 1141993 | 5300000-1141993= 4158007 |
2022 | 1671993 | 4158007*10%= 415801 | 1671993-415801= 1256192 | 4158007-1256192= 2901815 |
2023 | 1671993 | 290181 | 1381812 | 1520003 |
2024 | 1671993 | 151990 **(difference is due to rounding off thus adjusted for) | 1520003 | 0 |
Total | 6687972 |
**Cash payment = Outstanding balance /PVA10%,4
= 5,300,000 /3.16987
= 1671993 rounded
Find present value annuity factor from table at 10% for 4 years
3& 4).
Date | Account title | Debit | credit |
31 Dec 2021 | Note payable | 1141993 | |
Interest expense | 530000 | ||
cash | 1671993 | ||
31 Dec 2023 | Note payable | 1381812 | |
Interest expense | 290181 | ||
cash | 1671993 |
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