Question

On November 1, 2019, Norwood borrows $590,000 cash from a bank by signing a five-year installment note bearing 7% interest. The note requires equal payments of $143,895 each year on October 31. Required: 1. Complete an amortization table for this installment note. 2. Prepare the journal entries in which Norwood records the following: (a) Accrued interest as of December 31, 2019 (the end of its annual reporting period). (b) The first annual payment on the note.

Complete an amortization table for this installment note.

Prepare journal entries to record accrued interest as of December 31, 2019 and the first annual payment on October 31, 2020.

Answer 1

1.)	Preparation of amortization table :-
	Period Ending Date	Beginning Balance	Debit Interest Expense	Debit Notes payable	Credit Cash	Ending Balance
	a	b = a x 7%	c = (d - b )	d	e = (a - c )
	31-10-2020	590,000	41,300	102,595	143,895	487,405
	31-10-2021	487,405	34,118	109,777	143,895	377,628
	31-10-2022	377,628	26,434	117,461	143,895	260,167
	31-10-2023	260,167	18,212	125,683	143,895	134,484
	31-10-2024	134,484	9,411	134,484	143,895	0

2.)
a.)	Journal Entry for accured interest :-
	Date	Account Titles	Debit	Credit
	31-12-2019	Interest Expense	6,883
		To Interest Payable		6,883
		(41,300 x ( 2 / 12 ) )
b.)	Journal Entry for first annual payment:-
	Date	Account Titles	Debit	Credit
	31-10-2020	Interest Expense (41,300 x (10/12) )	34,417
		Interest Payable	6,883
		Note Payable	1,02,595
		To Bank		1,43,895