Question

Finance Co lent $8.8 million to Corbin Construction on January 1, 2021, to construct a playground Corbin signed a three-year, 5% installment note to be paid in three equal payments at the end of each year. 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 Finance Co's lending the flands 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. Sok int Complete this question by entering your answers in the tabs below. ciences Reg 2 Reg 1 3 and 4 Prepare an amortization schedule for the three-year term of the installment note. (Enter your answers in whole dollars.) Dec. 31 Cash Payment Effective interest Decrease in Balance Outstanding Balance 2021 2022 2023 Reg2 Req 1 3 and 4 >

Answer 1

Requirement 2) Amortization Schedule

Equal annual installment = Principle amount X r(1+r)ⁿ / (1+r)ⁿ - 1

Where n = number of years

r = Annual rate of interest

Equal annual installment = $ 8,800,000 X 0.05(1+0.05)³ / (1+0.05)³ - 1

Equal annual installment = $ 8,800,000 X 0.05788125/0.157625

Equal annual installment = 3,231,435

Dec 31	Cash Payment	Effective Interest	Decrease in balance	Outstanding Balance
2021	3,231,435	440,000	2,791,435	6,008,565
2022	3,231,435	300,428	2,931,007	3,077,558
2023	3,231,435	153,877	3,077,558	Nil
Total		894,305	8,800,000	$ 0

Effective interest calculation :

2021 = Outstanding balance of note X 5 %

2021 = $ 8,800,000 X 5% = $ 440,000

2022 = Outstanding balance of note X 5%

2022 = $ 6,008,565 X 5% = $ 300,428

2023 = Outstanding balance of note X 5%

2023 = $ 3,077,558 X 5% = $ 153,877.90 but for fractional calculation it is considered as $ 153,877 ( due to round up the digits )

Requirement 1

Journal Entry in the books of Finance Co

Date	Accounts title	Debit($)	Credit($)
January 1,2021	Note Receivable	8,800,000
	Cash		8,800,000
	[Cash lent out in against of note receivable ]

Requirement 3 and 4

Journal Entries in the books of Corbin Construction

Date	Accounts title and explanation	Debit($)	Credit($)
December 31,2021	Note Payable	2,791,435
	Interest expense	440,000
	Cash		3,231,435
	[First installment paid ]
December 31,2023	Note Payable	3,077,558
	Interest Expense	153,877
	Cash		3,231,435
	[Final installment paid ]