Question

On January 1, Year 1, Bryson Company obtained a $71,000, four-year, 11% installment note from Campbell Bank. The note requires annual payments of $22,885, beginning on December 31, Year 1. a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 4. Note: Round the computation of the interest expense to the nearest whole dollar. Enter all amounts as positive numbers. In Year 4, round the amount in the Decrease in Notes Payable column either up or down to ensure that the Carrying Amount zeroes out.

Amortization of Installment Notes Year Ending December 31 Decrease in January 1 Carrying Amount Interest Expense (11% of January 1 Note Carrying Amount) Note Payment (Cash Paid) December 31 Carrying Amount Notes Payable Year 1 Year 2 Year 3 Year 4 $ $

b. Journalize the entries for the issuance of the note and the four annual note payments.

Note: For a compound transaction, if an amount box does not require an entry, leave it blank. For the Year 4 entry (due to rounding), adjust Notes Payable up or down to ensure that debits equal credits.

c. How will the annual note payment be reported in the Year 1 income statement?
______________ of $______ would be reported on the income statement.

Answer 1

• Requirement [1]

Year ending 31 Dec	Jan 1 Carrying Amount	Notes Payment	Interest Expense	Decrease in Notes Payable	Dec 31 Carrying Amount
	[A]	[B]	[C = A x 11%]	[D = B - C]	[E = A - D]
Year 1	$71,000	$22,885	$7,810	$15,075	$55,925
Year 2	$55,925	$22,885	$6,152	$16,733	$39,192
Year 3	$39,192	$22,885	$4,311	$18,574	$20,618
Year 4	$20,618	$22,885	$2,267	$20,618	$0
		$91,540	$20,540	$71,000

• Requirement [2] based on requirement 1 data

Date	Accounts title	Debit	Credit
1 Jan Year 1	Cash	$71,000
	Notes Payable		$71,000
31 Dec year 1	Interest Expense	$7,810
	Notes Payable	$15,075
	Cash		$22,885
31 Dec year 1	Interest Expense	$6,152
	Notes Payable	$16,733
	Cash		$22,885
31 Dec year 1	Interest Expense	$4,311
	Notes Payable	$18,574
	Cash		$22,885
31 Dec year 1	Interest Expense	$2,267
	Notes Payable	$20,618
	Cash		$22,885

• Requirement 3

$ 7810 of uwould be reported on the Income Statement as Interest Expense.