Question

On November 30, 2017, Calla Resources Ltd. borrowed $120,000 from a bank by signing a four-year instalment note bearing interest at 10%. The terms of the note require equal payments each year on November 30, starting November 30, 2018. Use TABLE 14A.2

Required:
1. Calculate the size of each instalment payment. (Do not round intermediate calculations. Round the final answer to the nearest whole dollar.)

	Payment

2. Complete an instalment note amortization schedule for this note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.)

	Payments Period Ending Beginning Balance Period Interest Expense Debit Notes Payable Credit Cash Ending Balance Nov. 30/18 Nov. 30/19 Nov. 30/20 Nov. 30/21 Totals

3. Present the journal entries that Calla would make to record accrued interest as of December 31, 2017 (the end of the annual reporting period), and the first payment on the note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

1.Record the accrued interest on the installment note payable.

2.Record the first payment made on installment note.

4. Now assume that the note does not require equal payments but does require four payments that include accrued interest and an equal amount of principal in each payment. Complete an instalment note amortization schedule for this note. Present the journal entries that Calla would make to record accrued interest as of December 31, 2017 (the end of the annual reporting period), and the first payment on the note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.)

	Payments Period Ending Beginning Balance Period Interest Expense Debit Notes Payable Credit Cash Ending Balance Nov. 30/18 Nov. 30/19 Nov. 30/20 Nov. 30/21 Totals

1.Record the accrued interest on the installment note payable.

2.Record the first payment made on installment note.

Answer 1

Part 1

Calculation of Size of installment

Outflow = Inflow

Let the installment amount is X

X*Present Value Of Annuity Factor (10%, 4) = $120,000

X*3.1698 = $120,000

X = $ 37857

Part 2

Period Ending	Begining Balance	Interest Expenses	Debit Notes Payable	Credit Cash	Ending Balance
Nov 30/18	120,000	12,000	132,000	37,857	94,143
Nov 30/19	94,143	9,414	103,557	37,857	65,700
Nov 30/20	65700	6570	72270	37857	34413
nov 30/21	34413	3444 (Rounded Off)	37857	37857	0
Total		31428		151428

Part 3

Journal Entries

Dec 31 2017 Dr. Interest A/c ...................1000

Cr. Accrued Interest A/c......1000

Nov 30 2018 Dr. Accrued Interest A/c.........1000

Dr, Interest A/c.......................11000

Cr. Debit Notes Payable A/c...12000

Nov 30 2018 Dr. Debit Notes Payable A/c...37857

Cr. Cash A/c..........................37857

Part 4

Period Ending	Begining Balance	Interest Expenses	Debit Notes Payable	Credit Cash	Ending Balance
Nov 30/18	120,000	12,000	132,000	42000	90000
Nov 30/19	90000	9000	99000	39000	60000
Nov 30/20	60000	6000	66000	36000	30000
nov 30/21	30000	3000	33000	33000	0
Total		30000		150000

Journal Entries

Dec 31 2017 Dr. Interest A/c ...................1000

Cr. Accrued Interest A/c......1000

Nov 30 2018 Dr. Accrued Interest A/c.........1000

Dr, Interest A/c.......................11000

Cr. Debit Notes Payable A/c...12000

Nov 30 2018 Dr. Debit Notes Payable A/c...42000

Cr. Cash A/c..........................42000

Working Note:

Calculation of Cash Payment Every year

Principal Repayment Every year = 120000/4

= 30000

Years	Principal Repayment	Interest	Total Amount repaid
1	30000	12000	42000
2	30000	9000	39000
3	30000	6000	36000
4	30000	3000	33000