Question

Example #2, On January 1, 2019 a company purchases an automobile for $100,000 by signing a note for the $100,000, with 4% interest rate. The note is to be paid in three equal payments of $36,034.85 at the end of each year beginning December 31, 2019.

Below is the loan reduction schedule (please be sure you understand it)!!!!!!

Date	Beg. Balance	interest expense	Cash Payment	Reduction in Principal	Principal Balance
2019	100,000	100,000.00*.04=4,000.00	36,034.85	36,034.85-4,000.00=32,034.85	100,000.00-32,034.85=67,965.15
2020	67,965.15	67,965.15*.04=2,718.60	36,034.85	36,034.85-2,718.60=33,316.25	67,965.15-33,316.25=34,648.90
2021	34,648.90	34,648.90*.04=1,385.95	36,034.85	36,034.85-1,385.95=34,648.90	34,648.90-34,648.90=0

1. PREPARE THE JOURNAL ENTRIES FOR 2019:

Date	Account Name	Debit	Credit
1/1/2019
12/31/2019

2. PREPARE THE JOURNAL ENTRIES FOR 2020:

Date	Account Name	Debit	Credit
12/31/2020

3. PREPARE THE JOURNAL ENTRIES FOR 2021:

Date	Account Name	Debit	Credit
12/31/2021

Answer 1

Solution:

Journal Entries
Date	Particulars	Debit	Credit
1-Jan-19	Equipment Dr	$100,000.00
	To Notes payable		$100,000.00
	(To record purchase of automobile)
31-Dec-19	Interest expense Dr	$4,000.00
	Notes payable Dr	$32,034.85
	To Cash		$36,034.85
	(To record installment payment)
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-20	Interest expense Dr	$2,718.60
	Notes payable Dr	$33,316.25
	To Cash		$36,034.85
	(To record installment payment)
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-21	Interest expense Dr	$1,385.95
	Notes payable Dr	$34,648.90
	To Cash		$36,034.85
	(To record installment payment)