Question

Entries for Installment Note Transactions

On January 1, Year 1, Bryson Company obtained a $19,000, four-year, 11% installment note from Campbell Bank. The note requires annual payments of $6,124, 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 Payable column 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 (11% 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
Year 1 Dec. 31
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

• All working forms part of the answer
• Requirement ‘a’

Amortization of Installment Notes
			Interest Expense
Year Ending	Carrying Amount	Note Payment	(11% of January 1	Decrease in	Carrying Amount
Dec-31	Jan-01	(Cash Paid)	Note Carrying	Notes Payable	Dec-31
			Amount)
Year 1	$                                                             19,000	$                   6,124	$                   2,090	$                      4,034	$          14,966
Year 2	$                                                             14,966	$                   6,124	$                   1,646	$                      4,478	$          10,488
Year 3	$                                                             10,488	$                   6,124	$                   1,154	$                      4,970	$             5,518
Year 4	$                                                               5,518	$                   6,124	$                      607	$                      5,518	$                    -
		$                24,496	$                   5,497

• Requirement ‘b’

Date	Accounts title	Debit	Credit
Year 1 Jan 1	Cash	$                19,000
	Notes payable		$                19,000
	(Notes issued)
Year 1 Dec 31	Interest Expense	$                   2,090
	Notes Payable	$                   4,034
	Cash		$                   6,124
	(Installment paid)
Year 2 Dec 31	Interest Expense	$                   1,646
	Notes Payable	$                   4,478
	Cash		$                   6,124
	(Installment paid)
Year 3 Dec 31	Interest Expense	$                   1,154
	Notes Payable	$                   4,970
	Cash		$                   6,124
	(Installment paid)
Year 4 Dec 31	Interest Expense	$                      607
	Notes Payable	$                   5,518
	Cash		$                   6,125
	(Installment paid)

• Requirement ‘c’

$ 0 of payment of Notes payable will be reported in Year 1 Income Statement, because Notes payable repayment reduces the Liability and does not get reflected in Income Statement.

However, $ 2090 of Interest Expense will be reported on Income Statement.