Question

Ullapiel J-IILII V VII LUI LULU The following information is provided for LAX, LLC on January 1, 2021: State Bank installment loan Principal: $ 1,000,000 Rate: 5.35% Term: 5 years Payment: $ 233,214 Payment dates: annual, end of year Par: Stated rate: Market rate: Term: Selling price: Discount: Bond issuance $ 2,000,000 5.00% 4.95% 3 years $ 2,002,756 $ 2,756 Interest (beg. bal. x rate) Note reduction Ending note balance $ 1,000,000 1. Prepare the installment loan amortization table: Beginning note Date balance Annual payment 01/01/21 12/31/21 1,000,000 233,214 12/31/22 233,214 12/31/23 233,214 12/31/24 233,214 12/31/25 233,214 2. Record the note and the first annual installment payment: Accounts Debits Credits Date 01/01/21 12/31/21 Premium amortization Total premium balance 2,756 Ending note balance $ 2,002,756 $ 3. Prepare the bond amortization table using the effective interest method: Beginning Coupon Int. (beg. CVX Date carrying value payments mark. %/2) 01/01/21 06/30/21 2,002,756 50,000 12/31/21 50,000 06/30/22 50,000 12/31/22 50,000 06/30/23 50,000 12/31/23 50,000 4. Record the sale of the bonds and the first semi-annual coupon payment: Accounts Debits Credits Date 01/01/21 06/30/21

Answer 1

Part 1

Date	Beginning note balance	Annual payment	Interest (beg. Bal. x rate)	Note reduction	Ending note balance
01/01/21					1000000
12/31/21	1000000	233214	53500	179714	820286
12/31/22	820286	233214	43885	189329	630957
12/31/23	630957	233214	33756	199458	431500
12/31/24	431500	233214	23085	210129	221371
12/31/25	221371	233214	11843	221371	0

Interest = beginning note balance * 5.35%

Beginning note balance = last years ending note balance

Note reduction = annual payment – interest

Ending note balance = beginning note balance – note reduction

Part 2

Date	Accounts	Debits	Credits
01/01/21	Cash	1000000
	Loan payable		1000000
12/31/21	Interest expense	53500
	Loan payable	179714
	Cash		233214

Part 3

Date	Beginning carrying value	Coupon payments	Int. (beginning CV x mark. % /2)	Premium amortization	Total premium balance	Ending note balance
01/01/21					2756	2002756
06/30/21	2002756	50000	49568	432	2324	2002324
12/31/21	2002324	50000	49558	442	1882	2001882
06/30/22	2001882	50000	49547	453	1428	2001428
12/31/22	2001428	50000	49535	465	964	2000964
06/30/23	2000964	50000	49524	476	488	2000488
12/31/23	2000488	50000	49512	488	0	2000000

Interest = beginning note balance * 4.95%/2

Beginning note balance = last ending note balance

Premium amortization = coupon payment – interest

Total premium balance = last premium balance – premium amortization

Ending note balance = beginning note balance – premium amortization

Date	Accounts	Debits	Credits
01/01/21	Cash	2002756
	Notes payable		2000000
	Premium on notes payable		2756
06/30/21	Interest expense	49568
	Premium on notes payable	432
	Cash		50000