In order to expand its business, the management of Carroll, Inc. issued a long-term notes payable...

In order to expand its business, the management of Carroll, Inc. issued a long-term notes payable for $50,000 on January 1, 2016. The note will be paid over a 10-year period with equal annual principal payments, December 31 of each year. The annual interest rate is 12%. Prepare the journal entry for the first installment payment.

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Expert Solution

Calculation of Annual payments
(A)	Value of notes payable	$ 50,000.00
(B)	Annuity factor total for 10 years @12% interest	5.650223
(A/B)	Annual payments for 10 Years	$ 8,849.21

Schedule of notes liability payment in 10 years with interest expense
Year	Beginning value of loan	Payments	Interest amount	Reduction in principle	Ending balance of loan
1	$ 50,000.00	$ 8,849.21	$ 6,000.00	$ 2,849.21	$ 47,150.79
2	$ 47,150.79	$ 8,849.21	$ 5,658.10	$ 3,191.11	$ 43,959.68
3	$ 43,959.68	$ 8,849.21	$ 5,275.16	$ 3,574.05	$ 40,385.63
4	$ 40,385.63	$ 8,849.21	$ 4,846.28	$ 4,002.93	$ 36,382.70
5	$ 36,382.70	$ 8,849.21	$ 4,365.92	$ 4,483.28	$ 31,899.42
6	$ 31,899.42	$ 8,849.21	$ 3,827.93	$ 5,021.28	$ 26,878.14
7	$ 26,878.14	$ 8,849.21	$ 3,225.38	$ 5,623.83	$ 21,254.30
8	$ 21,254.30	$ 8,849.21	$ 2,550.52	$ 6,298.69	$ 14,955.61
9	$ 14,955.61	$ 8,849.21	$ 1,794.67	$ 7,054.53	$ 7,901.08
10	$ 7,901.08	$ 8,849.21	$ 948.13	$ 7,901.08	$ 0.00

Journal Entry

Payment of first installment
Date	General Journal	Debit	Credit
Dec -31- 2016	Interest expense	$ 6,000.00
	Notes payable	$ 2,849.21
	Cash		$ 8,849.21
	(First installment paid)

ekkarill92 answered 1 year ago

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