Question

On November 1, 2019, Norwood borrows $590,000 cash from a bank by signing a five-year installment note bearing 7% interest. The note requires equal payments of $143,895 each year on October 31 Required: 1. Complete an amortization table for this installment note. 2. Prepare the journal entries in which Norwood records the following (a) Accrued interest as of December 31, 2019 (the end of its annual reporting period). (b) The first annual payment on the note Complete this question by entering your answers in the tabs below. Rēji Reg 2A and 2B Complete an amortization table for this installment note. (Round your intermediate calculations to the nearest dollar amount.) Period Ending Date Beginning Balance Debit Interest +Debit Notes Expense Payable Credit Cash on Ending Balance 10/31/2020 10/31/2021 10/31/2022 10/31/2023 10/31/2024 Total Req 2A and 28 >

Answer 1

Norwood PAYMENTS Debit Debit Credit Credit Beginnin Interest Ending Principal (comput Balance Period Cash Expense Notes Ending Principal Payable Balance ed) Date В-D 7% x A A-C + 1 31.12.20205,90,000 1,43,895 4,87,405 41,300 1,02,595 2 31.10.2021 4,87,405 1,43,895 3,77,628 1,43,895 2,60,167 1,43,895 1,34,484 34,118 1,09,777 + 31.10.2022 3,77,628 26,434 1,17,461 + 431.10.2023 2,60,167 1,25,683 18,212 5 31.10.2024 1,34,484 9,411 1,34,484 1,43,895 0 + 1.29.475 5,90,000 7.19,475 adjusted for roundings 3. General entries Credit Title Account Debit Date 31.12.2019 Interest expense 6,883 Interest Payable 6,883 31.10.2020 Interest expense 34,417 Interest Payable 6,883 Notes Payable 1,02,595 Cash 1,43,895 590000 x 7% x 10/12 = 34417

Polaski Company and Scott Company

Debt Equity Ratios = Total Liabilities / Total Equity

Polaski Company = 888000 / 1383000 = 0.642

Scott Company = 582000 / 558000 = 0.9897

Scott Company with higer Debt Equity ratio has a riskier financing structure as 99% capital is based on debt which implies more interest payments and more power to lenders.