Question

PROBLEM 10.4B Preparation and Use of an Amortization Table On October 1, 2018. Jenco signed a four-year, $100,000 note payable to Vicksburg State Bank in conjunction with the purchase of equipment. The note calls for interest at an annual rate of 12 percent (1 percent per month). The note is fully amortizing over a period of 48 months. The bank sent Jenco an amortization table showing the allocation of monthly payments between interest and principal over the life of the loan. A small part of this amortization table is illustrated as follows. (For convenience, amounts have been rounded to the nearest dollar.) AMORTIZATION TABLE (12%, 4-YEAR NOTE PAYABLE FOR $100,000; PAYABLE IN 48 MONTHLY INSTALLMENTS OF $2,633) Interest Period Payment Date Monthly Payment Interest Expense Principal Reduction Unpaid Balance Issue date Oct. 1, 2018 Nov. 1 Dec. 1 $2,633 2,633 $1,000 984 $1,633 1,649 $100,000 98,367 96,718 Instructions a. Explain whether the amounts of interest expense and the reductions in the unpaid principal are likely to change in any predictable pattern from month to month. b. Prepare journal entries to record the first two monthly payments on this note. c. Complete this amortization table for two more monthly installments. d. Will any amounts relating to this four-year note be classified as current liabilities in Jenco's December 31, 2018, balance sheet? Explain, but you need not compute any additional dollar amounts. page 480

Answer 1

Dec, 1 121, 4year Note Payable Alc. - Dr 1649 Interest Expense Alc...rnr 984 Po cash/Bank Al KBeing and installment paid? 2.633 Perind 3. 1 4 Date Jan 1, 2014 Feb 1, 2014 Payment $2633 $2633 Expense 967 951 Reducties Balena! 1666. 95032 1682 93,370 Yes, the interest Lo $967 will be current liability payable in January 2018 classified as Also, the Rincipal repayment in Januay ba is a current liability in balance sheet as a Ton wee 31, 2018 - 1. The January installment & $2633 milf be clamped as acorrent Wability