Question

a playground. Corbin siel -19 ment lender: ization ule 4-3 Finance Co lent 58 million to Corbin Construction on January 1, 2021, to construct a playgrou three-year, 65+ installment note to be paid in three equal payments at the end of each year. Required: 1. Prepare the journal entry for FinanceCo's lending the funds on January 1, 2021. 2. Prepare an amortization schedule for the three-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.

Answer 1

Amount borrowed = $8,000,000
Interest rate = 6%
Number of payments = 3

Let annual payment be $x

$8,000,000 = $x/1.06 + $x/1.06^2 + $x/1.06^3
$8,000,000 = $x * (1 - (1/1.06)^3) / 0.06
$8,000,000 = $x * 2.673012
$x = $2,992,878.50

Annual payment = $2,992,878.50

Answer to Requirement 2:

Beginning Interest Cash Paid Date Repayment of Ending Carrying Carrying Value Expense Principal Value Dec. 31, 2021 $ 8,000,000.00 $ 2,992,878.50 $ 480,000.00 $ 2,512,878.50 $5,487,121.50 Dec. 31, 2022 $ 5,487,121.50 $ 2,992,878.50 $ 329,227.29 $ 2,663,651.21 $ 2,823,470.29 Dec. 31, 2023 $ 2,823,470.29 $ 2,992,878.50 $ 169,408.21 $ 2,823,470.29 $

Answer to Requirement 1, 3 and 4:

Credit Debit $ 8,000,000.00 $ 8,000,000.00 $ 480,000.00 $ 2,512,878.50 $ 2,992,878.50 Date General Journal Jan. 01, 2021 Cash Notes Payable Dec. 31, 2021 Interest Expense Notes Payable Cash Dec. 31, 2022 Interest Expense Notes Payable Cash Dec. 31, 2023 Interest Expense Notes Payable Cash $ 329,227.29 $ 2,663,651.21 $ 2,992,878.50 $ 169,408.21 $ 2,823,470.29 $ 2,992,878.50