Question

Cucina Corp. signed a new installment note on January 1, 2018, and deposited the proceeds of $68,000 in its bank account. The note has a 3-year term, compounds 5 percent interest annually, and requires an annual installment payment on December 31. Cucina Corp. has a December 31 year-end and adjusts its accounts only at year-end.

Required:

1. Use an online application, such as the loan calculator with annual payments at mycalculators.com, to generate an amortization schedule. Enter that information into an amortization schedule with the following headings: Year, Beginning Notes Payable, Interest Expense, Repaid Principal on Notes Payable, and Ending Notes Payable.
2. Prepare the journal entries on (a) January 1, 2018, and December 31 of (b) 2018, (c) 2019, and (d) 2020.
3. If Cucina Corp.’s year-end were March 31, rather than December 31, prepare the adjusting journal entry would it make for this note on March 31, 2018?

Answer 1

According to given data the following solution is given below:

Task 1 :

for 1st year PV factor @5% is 0.95238 and PV Annuity factor @5% is 0.95238

for 2st year PV factor @5% is 0.90703 and PV Annuity factor @5% is 1085941

for 3st year PV factor @5% is 0.86384 and PV Annuity factor @5% is 2.72325

$68,000 is the price of truck

Divided: PV annuity factor@5% for 3 years	2.72325
Amount of each installment	$         24,970

Interest Expense = Beginning Notes Payment x 5%

Repaid Principal on Notes Payment = Payment done- Interest Expense

Ending Notes Payable = Beginning Notes Payable - Repaid Principal on Notes Payable

Amortization schedule
Year	starting Notes Payable	Payment made	Interest Expense	Repaid Principal on Notes Payable	Ending Notes Payable
2018	$        68,000	$     24,970	$        3,400	$     21,570	$        46,430
2019	$        46,430	$     24,970	$        2,321	$     22,649	$        23,781
2020	$        23,781	$     24,970	$        1,189	$     23,781	$ 0

TASK 2:

Date	GJ	DT	CT
January 1, 2018	Amount	$        68,000
	Notes payment		$ 68,000
Journal entries
Date	GJ	DT	CT
Dec 31, 2018	Note Payment	$        21,570
	Interest Expense	$          3,400
	amount		$ 24,970
Dec 31, 2019	Note Payable	$        22,649
	Interest Expense	$          2,321
	amount		$ 24,970
Dec 31, 2020	Note Payment	$        23,781
	Interest Expense	$          1,189
	amount		$ 24,970

task 3

Date	GJ	Dt	Ct
Mar 31, 2018	Interest Expense	$              850
	Interest Payments		$        850
	To record accrue interest. (Jan to Mar = 3) (3400*3/12)