Question

Question 1

Journalizing Installment Notes

On the first day of the fiscal year, a company issues $58,000, 10%, six-year installment notes that have annual payments of $13,317. The first note payment consists of $5,800 of interest and $7,517 of principal repayment.

a. Journalize the entry to record the issuance of the installment notes.

b. Journalize the first annual note payment. For a compound transaction, if an amount box does not require an entry, leave it blank.

Question 2:

Times interest earned

Berry Company reported the following on the company's income statement in two recent years:

	Current Year		Prior Year
Interest expense	$341,000		$409,200
Income before income tax expense	4,160,200		4,828,560

a. Determine the number of times interest charges were earned for current Year and prior Year. Round to one decimal place.

Current Year
Prior Year

b. Is the number of times interest charges are earned improving or declining?

Answer 1

1
a
Cash	58000
Notes payable		58000
b
Notes payable	7517
Interest expense	5800
Cash		13317
2
a
	Current Year	Prior Year
Income before income tax expense	4160200	4828560
Add: Interest expense	341000	409200
Income before interest and tax	4501200	5237760
Divide by Interest expense	341000	409200
Number of times interest charges	13.2	12.8
Current Year	13.2
Prior Year	12.8
b
Number of times interest charges earned is improving