Question

On December 31, 2017, BLANK Inc. rendered services to BLANK Corporation at an agreed price of $109,448, accepting $42,900 down and agreeing to accept the balance in four equal installments of $21,450 receivable each December 31. An assumed interest rate of 11% is imputed.

Prepare an amortization schedule. Assume that the effective-interest method is used for amortization purposes. December 31, 2017 Schedule of Note Discount Amortization Date Cash Received Interest Revenue Carrying Amount of Note 12/31/17 $ $ $ 12/31/18 12/31/19 12/31/20 12/31/21 Prepare the entries that would be recorded by BLANKInc. for the sale on December 31, 2017. Prepare the entries that would be recorded by BLANK Inc. for the (a) receipts and (b) interest on December 31, 2018. Prepare the entries that would be recorded by BLANK Inc. for the (a) receipts and (b) interest on December 31, 2019. Prepare the entries that would be recorded by BLANK Inc. for the (a) receipts and (b) interest on December 31, 2020. Prepare the entries that would be recorded by BLANK Inc. for the (a) receipts and (b) interest on December 31, 2021. No. Account Titles and Explanation Debit Credit (a) (b)

Answer 1

December 31,2017
Schedule of Note Discount Amortization
	Cash	Interest	Reduction in	Carrying
Date	Received	Revenue	carrying amount	Amount of Note
12/31/2017	$42,900			$66,548
12/31/2018	$21,450	$7,320	$14,130	$52,418
12/31/2019	$21,450	$5,766	$15,684	$36,734
12/31/2020	$21,450	$4,041	$17,409	$19,325
12/31/2021	$21,450	$2,126	$19,324	$0.82

Interest revenue = Preceding carrying amount of note x 11%

Reduction in carrying amount = Cash received - Interest revenue

Carrying amount of note = Preceding carrying amount of note - Reduction in carrying amount.

Journal entries:

No	Date	Account title and explanation	Debit	Credit
a	Dec 31,2018	Cash	$14,130
		Notes receivable		$14,130
		[To record receipts for the notes]
b	Dec 31,2018	Cash	$7,320
		Interest revenue		$7,320
		[To record interest revenue on the note]
a	Dec 31,2019	Cash	$15,684
		Notes receivable		$15,684
		[To record receipts for the notes]
b	Dec 31,2019	Cash	$5,766
		Interest revenue		$5,766
		[To record interest revenue on the note]
a	Dec 31,2020	Cash	$17,409
		Notes receivable		$17,409
		[To record receipts for the notes]
b	Dec 31,2020	Cash	$4,041
		Interest revenue		$4,041
		[To record interest revenue on the note]
a	Dec 31,2021	Cash	$19,324
		Notes receivable		$19,324
		[To record receipts for the notes]
b	Dec 31,2021	Cash	$2,126
		Interest revenue		$2,126
		[To record interest revenue on the note]