Question

On November 1, 2019, Norwood borrows $580,000 cash from a bank by signing a five-year installment note bearing 5% interest. The note requires equal payments of $133,965 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.

Answer 1

1)

formulas will be as follows:

Year 0 = present date (nov1, 2019)

Year 1 = one year after that(oct 31,2020) ,and continues untill year 5

(above answers are rounded to nearest whole number)

2)

a) interest for first year = 29000

interest for two months(nov and dec.) = 29,000*(2/12) = 4833

Journal entry will be as follows

interest expense ..........Dr 4,833

to

interest payable ............Cr 4,833.33

b)

balance interest amount fall in the upcoming year = 29,000 - 4333 = 24,167

Interest expense.......Dr 24,167

Interest payable.........Dr 4,833

Note Payable .............Dr 104,965

To

Cash ...........................Cr 133,965