Question

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Little Company borrowed $55,000 from Sockets on January 1, 2021, and signed a three-year, 6% Installment note to be paid in three equal payments at the end of each year. The present value of an ordinary annuity of $1 for 3 periods at 6% is 2.67301 Required: 1. Prepare the journal entry on January 1, 2021, for Sockets' lending the funds. 2. Calculate the amount of one installment payment. 3. Prepare an amortization schedule for the three-year term of the installment note. 4. Prepare the journal entry for Sockets' first installment payment received on December 31, 2021. 5. Prepare the journal entry for Sockets' third installment payment received on December 31, 2023. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Prepare the journal entry on January 1, 2021, for Sockets' lending the funds. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet Record the entry for Sockets' lending the funds on January 1, 2021. Note: Enter debits before credits Date General Journal Debit Credit January 01, 2021

Answer 1

(1) -- Prepare the journal entry on January 1, 2021, for Sockets’ lending the funds.

Answer -

Date	General Journal	Debit ($)	Credit ($)
January 1, 2021	Notes receivable Cash	55000 -	- 55000

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(2) -- Calculate the amount of one installment payment.

Answer -

	Particulars	Explanation
A.	Amount of loan	Given in question	$55000
B.	Present value of an ordinary annuity of $1 for 3 periods at 6%	Given in question	2.67301
Installment payment		A / B	$20576

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(3) -- Prepare an amortization schedule for the three-year term of the installment note.

Answer -

Amortization schedule

Year	Cash Payments ($)	Effective Interest ($)	Decrease in Balance ($)	Outstanding Balance ($)
-	-	-	-	55000
2021	20576 [Calculated in part - (2)]	3300 [55000 * 6%]	17276 [20576 - 3300]	37724 [55000 - 17276]
2022	20576 [Calculated in part - (2)]	2263 [37724 * 6%]	18313 [20576 - 2263]	19411 [37724 - 18313]
2023	20576 [Calculated in part - (2)]	1165 [19411 * 6%]	19411 [20576 - 1165]	0 [19411 - 19411]
-	61728	6728	55000	-

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(4) -- Prepare the journal entry for Sockets’ first installment payment received on December 31, 2021.

Answer -

Date	General Journal	Debit ($)	Credit ($)
December 31, 2021	Cash [Calculated in part - (2)] Notes receivable [Difference] Interest revenue [Calculated in part - (3)]	20576 - -	- 17276 3300

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(5) -- Prepare the journal entry for Sockets’ third installment payment received on December 31, 2023.

Answer -

Date	General Journal	Debit ($)	Credit ($)
December 31, 2023	Cash [Calculated in part - (2)] Notes receivable [Difference] Interest revenue [Calculated in part - (3)]	20576 - -	- 19411 1165