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 $4.2 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.

Dec.31 Cash Payment Effective Interest Decrease in Balance Outstanding Balance 2021 2022 2023 2024

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

A E F G H K Credit 1 2 Req 1 3 B Date Account Title and Explanation Jan 1, 2021 Machine Note Payable (To record Purchase of machine) Debit $ 42,00,000.00 $ 42,00,000.00 4 Reg 2 Dec. 31 Cash Payment 5 Req 3 6 7 8 $ 5,04,000.00 $ 8,78,784.63 Jan 31, 2021 Interest expense Note Payable Cash (To record first installment payment) 2021 $ 2022 $ 2023 $ 2024 $ $ $ 13,82,784.63 Effective Interest Decrease in balance Outstanding balance 42,00,000.00 $ 5,04,000.00 $ 8,78,784.63 $ 33,21,215.37 $ 3,98,545.84 $ 9,84,238.79 $ 23,36,976.58 $ 2,80,437.19 $ 11,02,347.44 $ 12,34,629.14 $ 1,48,155.50 $ 12,34,629.14 $ 42,00,000.00 13,82,784.63 13,82,784.63 13,82,784.63 13,82,784.63 55,31,138.53 9 $ 2,80,437.19 $ 11,02,347.44 3.0373 10 11 Req 4 12 13 14 15 Jan 31, 2023 Interest expense Note Payable Cash (To record third installment payment) PV of ordianry annuity n=4, i= 0.12 Payment = 4200000/3.0373 $ 13,82,784.63

In case of any clarification, please do comment. Thank you