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, 2018. In payment for the $5.9 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 11%, (FV of $1. PV of $1. FVA of $1. PVA of $1. EVAD 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, 2018 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, 2018 4. Prepare the journal entry for the third installment payment on December 31, 2020 Complete this question by entering your answers in the tabs below. Reg 2 Req 1 3 and 4 Prepare an amortization schedule for the four-year term of the installment note. (Enter your answers in whole dollars.) Dec.31 Cash Payment Effective Interest Decrease in Balance Outstanding Balance 2018 2019 2020 2021 Reg 2 Reg 13 and 4 >

Answer 1

Requirement 2:

Dec.13	Cash payment	Effective interest	Decrease in Balance	Outstanding Balance
				$4,576,107
2018	$1,475,000	$503,372	$971,628	$3,604,479
2019	$1,475,000	$396,493	$1,078,507	$2,525,972
2020	$1,475,000	$277,857	$1,197,143	$1,328,829
2021	$1,475,000	$146,171	$1,328,829	$0

i.Cash payment = $5,900,000/4 installments = $1,475,000

ii.Outstanding balance on Jan.1,2018 = Each installment x Present value annuity factor (11%, 4 Years)

= $1,475,000 x 3.1024457

=$4,576,107

iii.Effective interest = Preceding outstanding balance x 11%

iv.Decrease in Balance = Cash payment - Effective interest

v. Outstanding balance = Preceding outstanding balance - Decrease in Balance

Requirement 1,3&4:

	Date	Account title and Explanation	Debit	Credit
1	January 01,2018	Machine	$4,576,107
		Notes payable		$4,576,107
		[To record issuance of notes payable for machine]
3	December 31,2018	Interest expense	$503,372
		Notes payable	$971,628
		Cash		$1,475,000
		[To record first installment payment]
4	December 31,2020	Interest expense	$277,857
		Notes payable	$1,197,143
		Cash		$1,475,000
		[To record third installment payment]