Question

On January 1, a company borrowed cash by issuing a $300,000, 5%, installment note to be paid in three equal payments at the end of each year beginning December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

What would be the amount of each installment?
Prepare an amortization table for the installment note.
Prepare the journal entry for the second installment payment.

	Table or calculator function: Amount Borrowed: n = i = Annual Payment:

Cash Payment Interest Expense Decrease in Balance Outstanding Balance $300,000 1 2 3 Total

• Record the second installment payment.

Note: Enter debits before credits.

	Event General Journal Debit Credit 1

Answer 1

Table or calculator function:
Amount Borrowed:	3,00,000
n =	3
i =	5%
Annual Payment:
Working, Annual payment = Loan amount/Sum of present value factor
= 300000/2.72325
= $110,162

2.       Amortisation table
	Cash payment	Interest expense	Decrease in balance	Outstanding balance
	A	B=(D*.05)	C=A-B	D=(D0-A)
				3,00,000
1	1,10,162	15,000	95,162	2,04,838
2	1,10,162	10,242	99,920	1,04,918
3	1,10,162	5,244	1,04,918	-
Total	3,30,486	30,486	3,00,000

3)

Event General Journal Debit($) Credit($)                          2 Interest Expenses                                      10,242 Notes Payable                                        99,920         cash                              1,10,162 ( To Record the second installment payment.)

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