Question

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed the construction of the machine on January 1, 2021. In payment for the $5.5 million machines, 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.

Answer 1

Date	Accounts & Explanations	Debit	Credit
01-01-2021	Machinery A/c	55,00,000
	Instalment note Payable A/c		55,00,000
	(Being Machinery Purchased from Barton & Barton through issue of four year instalment note)

Amount of Equal Instalment Payment is calculated by Excel Function 'PMT'

Note Amortization Schedule:

Year	Beginning Value	Interest	Instalment Paid	Ending Balance
1	55,00,000	6,60,000	18,10,789	43,49,211
2	43,49,211	5,21,905	18,10,789	30,60,326
3	30,60,326	3,67,239	18,10,789	16,16,776
4	16,16,776	1,94,013	18,10,789	-

Date	Accounts & Explanations	Debit	Credit
31-12-2021	Interest Expense	6,60,000
	Instalment note Payable A/c	11,50,789
	Bank / Cash		18,10,789
	(Recording first installment payment on December 31, 2021)
Date	Accounts & Explanations	Debit	Credit
31-12-2023	Interest Expense	3,67,239
	Instalment note Payable A/c	14,43,550
	Bank / Cash		18,10,789
	(Recording third installment payment on December 31, 2023)