Question

On January 1, 2017, Eagle borrows $16,000 cash by signing a four-year, 5% installment note. The note requires four equal payments of $4,512, consisting of accrued interest and principal on December 31 of each year from 2017 through 2020. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations and final answers to the nearest dollar amount. Round all table values to 4 decimal places, and use the rounded table values in calculations.)

Prepare the journal entries for Eagle to record the loan on January 1, 2017, and the four payments from December 31, 2017, through December 31, 2020.

Answer 1

Solution:

Note Amortization Schedule
Date	Cash paid	Interest expense	Decrease in carrying value	Carrying value
1-Jan-17				$16,000
31-Dec-17	$4,512	$800	$3,712	$12,288
31-Dec-18	$4,512	$614	$3,898	$8,390
31-Dec-19	$4,512	$420	$4,092	$4,298
31-Dec-20	$4,512	$214	$4,298	$0

Journal Entries - Eagle
Date	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$16,000.00
	To Notes Payable		$16,000.00
	(To record borrowings)
31-Dec-17	Interest expense Dr	$800.00
	Notes payable Dr	$3,712.00
	To Interest payable		$4,512.00
	(To record installment payment)
31-Dec-18	Interest expense Dr	$614.00
	Notes payable Dr	$3,898.00
	To Interest payable		$4,512.00
	(To record installment payment)
31-Dec-19	Interest expense Dr	$420.00
	Notes payable Dr	$4,092.00
	To Interest payable		$4,512.00
	(To record installment payment)
31-Dec-20	Interest expense Dr	$214.00
	Notes payable Dr	$4,298.00
	To Interest payable		$4,512.00
	(To record installment payment)