Question

Blanchard Inc. acquired a packaging machine from CCC Corporation. CCC Corporation completed construction of the machine on January 1, 2020. In payment for the $5 million machine, Blanchard Inc. issued a three-year installment note to be paid in three equal payments at the end of each year. The payments include interest at the rate of 8%.

1. Prepare the journal entry for Blanchard’s purchase of the machine on January 1, 2020.

January 1, 2020:

2. Prepare the partial amortization schedule for the first two years of the 3-year installment note.

Amount of loan
÷ Present value of an ordinary annuity (PVA) of $1
Installment payment (rounded up to the nearest integer)

Date	Cash Payment	Effective Interest	Decrease in Balance	Outstanding Balance
1/1/2020
12/31/2020
12/31/2021
12/31/2022	Not required	Not required	Not required	Not required

3. Prepare the journal entry for the installment payments on December 31, 2020 and December 31, 2021.

December 31, 2020:

December 31, 2021:

Answer 1

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