Question

On January 1, Year 1, Bryson Company obtained a $71,000, four-year, 11% installment note from Campbell Bank. The note requires annual payments of $22,885, 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.

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	Cash
	Notes Payable
Year 1 Dec. 31	Interest Expense
	Notes Payable
	Cash
Year 2 Dec. 31	Interest Expense
	Notes Payable
	Cash
Year 3 Dec. 31	Interest Expense
	Notes Payable
	Cash
Year 4 Dec. 31	Interest Expense
	Notes Payable
c. How will the annual note payment be reported in the Year 1 income statement? Interest expense of $ would be reported on the income statement.

Answer 1

a. Amortization Table:

Year	Cash Payment	Interest Expense	Reduction in Outstanding Balance	Outstanding Balance
	$	$	$	$
0				71,000
1	22,885	7,810	15,075	55,925
2	22,885	6,152	16,733	39,192
3	22,885	4,312	18,573	20,619
4	22,885	2,266	20,619	0
Total	$ 91,540	20,540	71,000

b.

Date	Account Titles	Debit	Credit
		$	$
Year 1, Jan 1	Cash	71,000
	Note Payable		71,000
Year 1, Dec 31	Interest Expense	7,810
	Note Payable	15,075
	Cash		22,885
Year 2, Dec 31	Interest Expense	6,152
	Note Payable	16,733
	Cash		22,885
Year 3, Dec 31	Interest Expense	4,312
	Note Payable	18,573
	Cash		22,885
Year 4, Dec 31	Interest Expense	2,266
	Note Payable	20,619
	Cash		22,885

c. Interest Expense of $ 7,810 will be deducted from operating income in the income statement.

Principal repayment of $ 15,075 will be deducted in the balance sheet ( Long Term Liabilities) from the carrying amount of $ 71,000. The net carrying amount of the note would be reported at $ 55,925.