Question

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. In payment for the $5.5 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 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 American Food Services' purchase of the machine on January 1, 2021. 2. Prepare an amortization schedule for the four-year term of the installment note. 3. Prepare the journal entry for the first installment payment on December 31, 2021. 4. Prepare the journal entry for the third installment payment on December 31, 2023. Complete this question by entering your answers in the tabs below. Reg 2 Req 1 3 and 4 Prepare the journal entries for American Food Services' purchase of the machine on January 1, 2021, the first installment payment on December 31, 2021 and the third installment payment on December 31, 2023. (Enter your answers in whole dollars. 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 < 1 2 3 Record the purchase of the machine on January 1, 2021. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021

Answer 1

Required 1 :
Date	General Journal	Debit	Credit
January 01,2021	Machine	$ 5,500,000
	Installment Note payable		$ 5,500,000
	(To record purchase of machine on January 1,2021)

Required 2 :

The amount of each payment needs to be determined before the

schedule can be prepared

Present value of annuity N=4 payments , i= 12% is 3.03735

Amount of each payment = $ 5,500,000 / 3.03735 = $ 1,810,789

Date	Cash Payment	Effective Interest	Decrease in Balance	Outstanding Balance
01-01-2021				$ 5,500,000
12/31/2021	$ 1,810,789	$ 660,000   {5,500,000*12%}	$ 1,150,789 {1,810,789-660,000}	$ 4,349,211 {5,500,000-1,150,789}
12/31/2022	$ 1,810,789	$ 521,905   {4,349,211*12%}	$ 1,288,884 {1,810,789-521,905}	$ 3,060,327 {4,349,211-1,288,884}
12/31/2023	$ 1,810,789	$ 367,239   {3,060,327*12%}	$ 1,443,550 {1,810,789-367,239}	$ 1,616,777   {3,060,327-1,443,550}
12/31/2024	$ 1,810,789	$ 194,012 (rounded to zero)	$ 1,616,777	$ 0

Required 3 :
Date	General Journal	Debit	Credit
December 31,2021	Installment Note payable	$ 1,150,789
	Interest expense	$ 660,000
	Cash		$ 1,810,789
	(To record first installment payment on December 31,2021)

Required 4 :
Date	General Journal	Debit	Credit
December 31,2023	Installment Note payable	$ 1,443,550
	Interest expense	$ 367,239
	Cash		$ 1,810,789
	(To record third installment payment on December 31,2023)