Question

Problem 14-6A Installment notes LO C1

On November 1, 2017, Norwood borrows $430,000 cash from a bank by signing a five-year installment note bearing 5% interest. The note requires equal payments of $99,319 each year on October 31. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)

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, 2017 (the end of its annual reporting period).
(b) The first annual payment on the note.

Answer 1

Period Ending Date	Beginning Balance	Debit Interest Expenses	Debit Notes Payable	Credit Cash	Ending Balance
10/31/2018	$430,000	$21,500	$77,819	$99,319	$352,181
10/31/2019	$352,181	$17,609	$81,710	$99,319	$270,471
10/31/2020	$270,471	$13,524	$85,795	$99,319	$184,676
10/31/2021	$184,676	$9,234	$90,085	$99,319	$94,590
10/31/2022	$94,590	$4,730	$94,590	$99,319	$0
		$66,596	$430,000	$496,595
Date	Accounts and Explanation	Debit	Credit
Dec 31, 2017	Interest Expenses	$3,583
	Interest Payable		$3,583
	(To record accrued interest)
Oct 31, 2018	Interest Expenses	$17,917
	Interest Payable	$3,583
	Notes Payable	$77,819
	Cash		$99,319
	(To record annual payment of note)
Working
Accrued interest on the installment note payable ($21,500 × 2/12) = $3,583