Question

Finance Co lent $9.7 million to Corbin Construction on January 1, 2018, to construct a playground. Corbin signed a three year, 6% Installment note to be paid in three equal payments at the end of each year (FV of $1. PV O SLEVA O 51. PVA of $1. EVAD of S1 and PVAD of SD (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entry for FinanceCo's lending the funds on January 1, 2018 2. Prepare an amortization schedule for the three-year term of the installment note 3. Prepare the journal entry for the first installment payment on December 31, 2018 4. Prepare the journal entry for the third installment payment on December 31, 2020,

Answer 1

1

Annual payment = face value / PV annuity of $1(6%,3) = 9700,000/2.6730 = $ 3,628,881.40

The required journal entry would be

Date	Particulars	Debit ($)	Credit ($)
01.01.2018	Notes receivable	9700,000
	Cash		9700,000
	(To record notes )

2.

Date	Cash Payment (A)	Interest Revenue (B)	Decrease in Balance ((C) = (A) - (B))	Outstanding Balance ((D) = (Previous D) - (C))
1/1/2018				9,700,000
31/12/2018	3,628,881.40	582,000	3,046,881.40	6,653,118.60
31/12/2019	3,628,881.40	399,187	3,229,694.28	3,423,424.32
31/12/2020	3,628,881.40	205,405	3,423,424.32	NIL

3.

Date	Particulars	Debit ($)	Credit ($)
31.12.2018	Cash	3,628,881.40
	Interest revenue		582,000
	Notes receivable		3,046,881.40
	(To record cash receipt)

4.

Date	Particulars	Debit ($)	Credit ($)
31.12.2020	Cash	3,628,881.40
	Interest revenue		205,405
	Notes receivable		3,423,424.32
	(To record cash receipt)

There is difference of $ 52 in last entry which is due to rounding off.