Question

Entries for Installment Note Transactions On January 1, Year 1, Bryson Company obtained a $66,000, four-year, 8% installment note from Campbell Bank. The note requires annual payments of $19,927, 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 Interest Expense Ending (8% of January 1 December 31 January 1 Note Payment Decrease in December Note Carrying Carrying Carrying Amount (Cash Paid) Amount) Notes Payable Amount Year 31 Year 1 Year 2 Year 3 Year 4 0

Answer 1

Solution:

Year Ending December 31 Requirement (a) Amortization of Installment Notes January 1 Note Payment Interest Decrease in Carrying (Cash Paid) Expense Notes Payable Amount (A) (B) (C) = (A *8%) (D) = (B-C) $66,000 $19,927 $5,280 $14,647 $51,353 $19,927 $4,108 $15,819 $35,534 $19,927 $2,843 $17,084 $18,450 $19,927 $1,477 $18,450 $79,708 $13,708 $66,000 Year 1 Year 2 December 31 Carrying Amount (E) = (A-D) $51,353 $35,534 $18,450 $0 Year 3 Year 4

Date Credit Requirement (b) Journal Entries Accounts Title Cash Notes Payable (To record issuance of notes payable) Debit $66,000 Year 1 Jan. 1 $66,000 $5,280 $14,647 Year 1 Dec. 31 Interest Expense Notes Payable Cash (To record payment of interest & ins $19,927 ent) $4,108 $15,819 Year 2 Dec. 31 Interest Expense Notes Payable Cash (To record payment of interest & installment) $19,927 $2,843 $17,084 Year 3 Dec. 31 Interest Expense Notes Payable Cash (To record payment of interest & installment) $19,927 $1,477 $18,450 Year 4 Dec. 31 Interest Expense Notes Payable Cash (To record payment of interest & installment) $19,927

Requirement (c) Interest Expense of $5,280 would be reported on the income Statement