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 $4.6 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. 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 2021 2022 2023 2024 Req 2 Req 1 3 and 4 >

Answer 1

Requirement 1:

Date	Account title and explanation	Debit	Credit
January 1,2021	Machine	$4,600,000
	Notes payable		$4,600,000
	[To record acquisition of machine in exchange of notes]

Requirement 2:

Dec.31	Cash payment	Effective interest	Decrease in Balance	Outstanding Balance
				$4,600,000
2021	$1,514,478	$552,000	$962,478	$3,637,522
2022	$1,514,478	$436,503	$1,077,976	$2,559,546
2023	$1,514,478	$307,145	$1,207,333	$1,352,213
2024	$1,514,478	$162,266	$1,352,213	$0

Effective interest = Preceding outstanding x 12%

Decrease in balance = Cash payment - Effective interest

Outstanding balance = Preceding balance - Decrease in balance

Cash payment = $4,600,000 ÷ 3.037349 Present value annuity factor (12%,4 years)

Requirement 3:

Date	Account title and explanation	Debit	Credit
Dec 31,2021	Interest expense	$552,000
	Notes payable	$962,478
	Cash		$1,514,478
	[To record payment of first installment]

Requirement 4:

Date	Account title and explanation	Debit	Credit
Dec 31,2023	Interest expense	$307,145
	Notes payable	$1,207,333
	Cash		$1,514,478
	[To record payment of third installment]