Question

Braxton Technologies, Inc., constructed a conveyor for A&G Warehousers that was completed and ready for use on January 1, 2021. A&G paid for the conveyor by issuing a $175,000, four-year note that specified 8% interest to be paid on December 31 of each year, and the note is to be repaid at the end of four years. The conveyor was custom-built for A&G, so its cash price was unknown. By comparison with similar transactions it was determined that a reasonable interest rate was 12%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. Prepare the journal entry for A&G’s purchase of the conveyor on January 1, 2021.

2.Prepare an amortization schedule for the four-year term of the note.

3. Prepare the journal entry for A&G’s third interest payment on December 31, 2023.

4.If A&G’s note had been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2021, what would be the amount of each installment?

5. By considering the installment payment of requirement 4, prepare an amortization schedule for the four-year term of the installment note. 6. Prepare the journal entry for A&G’s third installment payment on December 31, 2023.

Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Prepare the journal entry for ABG's purchase of the conveyor on January 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round intermediate calculations and final answers to the nearest whole dollar.) View transaction list Journal entry worksheet Record A&G's purchase of the conveyor. Note: Enter debits before credits. Date General Journal Debit Credit January 01, 2021 | Record entry Clear entry View general journal

Answer 1

1	Date	General journal					Debit	Credit
	Jan 1,2021	Equipment				(Note:1)	153739
		Discount on notes payable			(175000-153739)		21261
		Note payable						175000
		(Purchase of conveyor)
	Note:1
	Issue price of the note=Present value of interest payment for 4 years+Present value of repayment at maturity
	Discount rate=12%
	Interest expense=175000*8%=$ 14000
	Present value of interest payment for 4 years=Interest expense*Discount factor at 12% for 4 years=14000*3.03735=$ 42523
	Present value of repayment at maturity=Maturity payment*Discount factor at 12% for 4th year=175000*0.63552=$ 111216
	Issue price of the note=42523+111216=153739
2	Amortization schedule:
	Years	Cash payment	Effective interest	Change in balance	Outstanding balance
					153739
	2021	14000	18449	4449	158188
	2022	14000	18983	4983	163170
	2023	14000	19580	5580	168751
	2024	14000	20249	6249	175000
	Cash payment=175000*8%=$ 14000
	Effective interest=Beginning outstanding balance*12%
	Change in balance=Effective interest-Cash payment
	Ending outstanding balance=Beginning outstanding balance+Change in balance
3	Date	General journal					Debit	Credit
	Dec 31,2023	Interest expense					19580
		Discount on notes payable						5580
		Cash						14000
		(Interest paid)
4	Amount of each installment=Value of the note/Discount factor at 8% for 4 years=175000/3.31213=$ 52836
5	Amortization schedule:
	Years	Cash payment	Effective interest	Change in balance	Outstanding balance
					175000
	2021	52836	14000	38836	136164
	2022	52836	10893	41943	94221
	2023	52836	7538	45298	48923
	2024	52836	3913	48923	0
	Cash payment=$ 52836
	Effective interest=Beginning outstanding balance*8%
	Change in balance=Cash payment-Effective interest
	Ending outstanding balance=Beginning outstanding balance-Change in balance
6	Date	General journal					Debit	Credit
	Dec 31,2023	Interest expense					7538
		Note payable					45298
		Cash						52836
		(Interest paid)