Question

PA10-9 (Supplement 10D) Generating an Amortization Schedule and Preparing Journal Entries [LO 10- S4) Cucina Corp. signed a new installment note on January 1, 2018, and deposited the proceeds of $65,000 in its bank account. The note has a 3-year term, compounds 4 percent interest annually, and requires an annual installment payment on December 31. Cucina Corp. has a December 31 year-end and adjusts its accounts only at year-end. Required: 1. Use an online application, such as the loan calculator with annual payments at mycalculators.com, to generate an amortization schedule. Enter that information into an amortization schedule with the following headings: Year, Beginning Notes Payable, Interest Expense, Repaid Principal on Notes Payable, and Ending 2. Prepare the journal entries on (a) January 1, 2018, and December 31 of (6) 2018, (c) 2019, and (d) 2020. 3. If Cucina Corp.'s year-end were March 31, rather than December 31, prepare the adjusting journal entry would it make for this note on March 31, 2018? Complete this question by entering your answers in the tabs below. Required Required Required Use an online application, such as the loan calculator with annual payments at mycalculators.com, to generate an amortization schedule. Enter that information into an amortization schedule with the following headings: Year, Beginning Notes Payable, Interest Expense, Repaid Principal on Notes Payable, and Ending Notes Payable. (Do not round intermediate calculations. Round final answers to nearest whole dollar.) Show less Repaid Beginning Ending Year Notes Interest Principal Notes Expense Payable Payable 2018 2019 2020 on Notes Payable Required 2 >

Answer 1

There are 2 type of installment that can be made. One is Principal amount divided by the number of periods + Interest. In this case the installment amount will not be equal. But the principal repayment will be equal. Another type of installment is the installment payment will be equal. The question does not provide for whether the installment is equal installment or not. The question is solved assuming the installments are equal.

Calculation of installment of Cucina Corp.
Value of note payable	$65000	P
Interest Rate	4%	R
Term	3	n
Installment =	P*R*(1+R)^n
	(1+R)^n-1
=	65000*0.04*(1+0.04)^3
	(1+0.04)^3-1
=	2924.646
	0.124864
Installment	$ 23422.66

Amortization Schedule
Year	Beginning Notes Payable	Payment	Interest Expense	Repaid Principal on Notes Payable	Ending Notes Payable
2018	65000	23422	2600	20822	44178
2019	44178	23422	1767	21654	22524
2020	22524	23422	901	22524	0

Journal entries in the books if Cucina Corp. for Notes payable
Date	Particulars	Debit	Credit
		$	$
2018 Jan-01	Bank A/c	65000
	To Notes Payable		65000
	( Being Notes payable on installment - received )
2018 Dec-31	Interest on Notes Payable A/c	2600
	To Notes Payable		2600
	( Being interest for the year 2018 @ 4% accounted )
2018 Dec-31	Notes Payable A/c	23422
	To Bank		23422
	( Being Installment for the year 2018 paid )
2019 Dec-31	Interest on Notes Payable A/c	1767
	To Notes Payable		1767.12
	( Being interest for the year 2019 @ 4% accounted )
2019 Dec-31	Notes Payable A/c	23422
	To Bank		23422
	( Being Installment for the year 2019 paid )
2020 Dec-31	Interest on Notes Payable A/c	901
	To Notes Payable		901
	( Being interest for the year 2020 @ 4% accounted )
2020 Dec-31	Notes Payable A/c	23422
	To Bank		23422
	( Being Installment for the year 2020 paid )

If the accounting year of Cucina Corp is ending on March 31 rather than December 31, it would make a provision for interest payable for the 3 months period according to accrual concept of accounting. The Adjusting Journal entry would be-

2018 Mar -31	Interest on Notes Payable A/c	650
	To Provision for interest on Notes Payable		650
	( Being provision for interest for 3 months made)