Question

Entries for Installment Note Transactions

On January 1, Year 1, Bryson Company obtained a $12,000, four-year, 9% installment note from Campbell Bank. The note requires annual payments of $3,704, 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 Payablecolumn either up or down to ensure that the Carrying Amount zeroes out.

Amortization of Installment Notes
Year Ending December 31	January 1 Carrying Amount			Note Payment (Cash Paid)			Interest Expense (9% of January 1 Note Carrying Amount)					Decrease in Notes Payable			December 31 Carrying Amount
Year 1	$			$			$					$			$
Year 2
Year 3
Year 4															0
				$			$					$

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.

Year 1 Jan. 1	Cash
	Notes Payable
Year 1 Dec. 31	Interest Expense
	Notes Payable
	Cash
Year 2 Dec. 31
Year 3 Dec. 31
Year 4 Dec. 31

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

				1-Jan	Note	intt expense	Decrease	31-Dec
Amortization of Installment Notes				Carrying	payment	9%	in	Carrying
Year ending December 31				amount	cash paid		notes payable	amount
year 1				12,000	3,704	1080	2,624	9,376
year 2				9,376	3,704	844	2,860	6,516
year 3				6516	3,704	586	3,118	3,398
year 4				3398	3,704	306	3,398	0
b)		Journal Entries
	Date	Account titles & Explanations					Debit	Credit
year 1	1-Jan	Cash					12,000
		Notes payable						12,000
year 1	31-Dec	Interest expense					1080
		Notes payable					2,624
		cash						3,704
year 2	31-Dec	Interest expense					844
		Notes payable					2,860
		cash						3,704
year 3	31-Dec	Interest expense					586
		Notes payable					3,118
		cash						3,704
year 4	31-Dec	Interest expense					306
		Notes payable					3,398
		cash						3,704
c)		1080	of	3,704	would be reported on income statement