On January 1, 2016, Eagle borrows $22,000 cash by signing a four-year, 6% installment note. The...

On January 1, 2016, Eagle borrows $22,000 cash by signing a four-year, 6% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2016 through 2019. (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.)

Calculate the amount of the annual payments, and then prepare the journal entries for Eagle to record the loan on January 1, 2016, and the four payments from December 31, 2016, through December 31, 2019.

Interest Rate	Notes Payable		Table Value		Cash Paid
		/		=

Eagle borrows $22,000 cash by signing a four-year, 6% installment note. Record the issuance of the note on January 1, 2016

Record the payment of the first installment payment of interest and principal on December 31, 2016.

Record the payment of the second installment payment of interest and principal on December 31, 2017.
Record the payment of the third installment payment of interest and principal on December 31, 2018.
Record the payment of the fourth installment payment of interest and principal on December 31, 2019. (Hint: Make sure that the balance in Notes payable is $0 after this entry.)

Solutions

Expert Solution


Calculation of Loan annual payment
We can use the present value of annuity formula to calculate annual loan payment.
Present Value of annuity = P x {[1 - (1+r)^-n]/r}				Loan payment Chart
Present value of annuity = Loan amount = $22,000						Towards
P = Annual loan payment = ?				Date	Annual Payment	Interest	Principle	Note Payable
r = interest rate = 6%				Jan.1,2016				$22,000
n = number of annual payments = 4				Dec.31,2016	$6,349	$1,320	$5,029	$16,971
22000 = P x {[1 - (1+0.06)^-4]/0.06}				Dec.31,2017	$6,349	$1,018	$5,331	$11,640
22000 = P x 3.4651				Dec.31,2018	$6,349	$698	$5,651	$5,990
P = 6349				Dec.31,2019	$6,349	$359	$5,990	$0
Annual Loan payment = $6,349

Journal entries
Date	Account Titles	Debit	Credit
Jan.1,2016	Cash	$22,000
	Note Payable		$22,000

Dec.31,2016	Interest Expense	$1,320
	Note Payable	$5,029
	Cash		$6,349

Dec.31,2017	Interest Expense	$1,018
	Note Payable	$5,331
	Cash		$6,349

Dec.31,2018	Interest Expense	$698
	Note Payable	$5,651
	Cash		$6,349

Dec.31,2019	Interest Expense	$359
	Note Payable	$5,990
	Cash		$6,349

jeff jeffy answered 8 months ago

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