Question

On January 1, 2017, Eagle borrows $27,000 cash by signing a four-year, 9% installment note. The note requires four equal payments of $8,334, 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.

Eagle borrows $27,000 cash by signing a four-year, 9% installment note. Record the issuance of the note on January 1, 2017.

Record the payment of the first installment payment of interest and principal on December 31, 2017.

Record the payment of the second installment payment of interest and principal on December 31, 2018.

Record the payment of the third installment payment of interest and principal on December 31, 2019

Record the payment of the fourth installment payment of interest and principal on December 31, 2020.

Answer 1

Present Value of Note payable at 9% interest for 4 years

= Annual Installment*PVAF(9%, 4 yrs)

= $8,334*3.2397 = $27,000

For calculating payment of principal and interest on each year end, we need to prepare an amortization schedule of Note payable which is shown as follows:-

Amortization schedule of Note payable (Amount in $)

Year ended	Opening Balance (A)	Annual Installment (B)	Interest Expense (C = A*9%)	Principal repayment (D = B - C)	Closing Balance (A-D)
2017	27,000	8,334	2,430	5,904	21,096
2018	21,096	8,334	1,899	6,435	14,661
2019	14,661	8,334	1,319	7,015	7,646
2020	7,646	8,334	688	7,646	0
Total		33,336	6,336	27,000

Working Notes:-

1) Opening Balance is equal to previous year closing balance. Interest expense is calculated at the rate of 9% on the opening balance of note payable.

2) Repayment of principal amount is deducted from Opening Balance of Note payable to calculate closing balance.

Journal Entries are shown as follows:- (Amount in $)

Date	Account Title	Debit	Credit
Jan 1, 2017	Cash	27,000
	Note Payable		27,000
Dec 31, 2017	Interest Expense	2,430
	Note Payable	5,904
	Cash		8,334
Dec 31, 2018	Interest Expense	1,899
	Note Payable	6,435
	Cash		8,334
Dec 31, 2019	Interest Expense	1,319
	Note Payable	7,015
	Cash		8,334
Dec 31, 2020	Interest Expense	688
	Note Payable	7,646
	Cash		8,334