Question

Lake Company sold some machinery to View Company on January 1, 2017, for which the cash selling price was $758,200. View entered into an installment sales contract with Lake at a 10% interest rate. The contract required payments of $200,000 a year over five years with the first payment due on December 31, 2017.

Required:

Prepare an amortization schedule that shows what portion of each $200,000 payment will be shown as interest income over the period 2017–2021. (Round your answers to the nearest whole dollar amount.)

Answer 1

	(a)	(b)	(c)	(d)
Period	Cash Payment	Interest Expense (effective interest rate = 10%)	Principal Reduction	Balance
		[Previous year balance X 10%]	(a) - (b)	[Previous year balance - (c)]
Jan 1, 2017				$                   7,58,200
2017	$         2,00,000	$                                 75,820	$              1,24,180	$                   6,34,020
2018	$         2,00,000	$                                 63,402	$              1,36,598	$                   4,97,422
2019	$         2,00,000	$                                 49,742	$              1,50,258	$                   3,47,164
2020	$         2,00,000	$                                 34,716	$              1,65,284	$                   1,81,881
2021	$         2,00,000	$                                 18,119	$              1,81,881	$                                -
		(Bal. Fig.)