Question

Entries for Installment Note Transactions

On January 1, Year 1, Bryson Company obtained a $55,000, four-year, 11% installment note from Campbell Bank. The note requires annual payments of $17,728, 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

Year	Jan1Carrying		Note	Interest Exp	Decreasse in		31-Dec
			Payment		Note payable		Carrying Value
Year1	55000		17728	6050	11678		43322
YEar2	43322		17728	4765	12963		30359
Year3	30359		17728	3340	14388		15971
YEar4	15971		17728	1757	15971		0
Journal entries:
Date	Accounts title and explanations				Debit $	Credit $
01.01Yr1	Cash account Dr.				55000
	Note payable					55000
31.12 Yr1	Interest expense Dr.				6050
	Notes payable Dr.				11678
	Cash					17728
31.12 Yr2	Interest expense Dr.				4765
	Notes payable Dr.				12963
	Cash					17728
31.12. Yr3	Interest expense Dr.				3340
	Notes payable Dr.				14388
	Cash					17728
31.12. Yr4	Interest expense Dr.				1757
	Notes payable Dr.				15971
	Cash					17728
Req 3.
Interest expense of $ 6050 will be reported in Income Statement of Year-1