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 $4 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 6%.

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

January 1, 2020:

PVA(i=3%, n=3) = 2.82861, PVA(i=3%, n=6) = 5.41719, PVA(i=6%, n=3) = 2.67301, PVA(i=6%, n=6) = 4.917322. 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

Journal entry:
S.no.	Accounts title and explanations			Debit $	Credit $
a.	Machine equipment				4000000
	Instalment note payable				4000000
	(for purchase of machine)
Amount of Note payable		40,00,000
Divide: Annuity PVF fr 3 yrs at 6%	2.67301
Annual instalment			1496440
Amort Chart
Date	Cash Paid	Interest	Dec. In Bal.	Outstanding balance
01.01.20				40,00,000
31.12.20	14,96,440	240000	12,56,440	27,43,560
31.12.21	14,96,440	1,64,614	13,31,826	14,11,734
31.12.22	14,96,440	84,706	14,11,734	0
Journal entry:
S.no.	Accounts title and explanations			Debit $	Credit $
31.12.20	Instalment note payable			12,56,440
	Interest expense				2,40,000
	Cash account					14,96,440
	(for instalment paid)
31.12.21	Instalment note payable			13,31,826
	Interest expense				1,64,614
	Cash account					14,96,440
	(for instalment paid)