Question

Entries for Installment Note Transactions

On January 1, Year 1, Bryson Company obtained a $33,000, four-year, 8% installment note from Campbell Bank. The note requires annual payments of $9,963, beginning on December 31, Year 1.

a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 4.

Note: Round the computation of the interest expense to the nearest whole dollar. Enter all amounts as positive numbers. In Year 4, round the amount in the Decrease in Notes Payable column either up or down to ensure that the Carrying Amount zeroes out.

Amortization of Installment Notes
Year Ending December 31	January 1 Carrying Amount			Note Payment (Cash Paid)			Interest Expense (8% of January 1 Note Carrying Amount)					Decrease in Notes Payable			December 31 Carrying Amount
Year 1	$			$			$					$			$
Year 2
Year 3
Year 4															0
				$			$					$

b. Journalize the entries for the issuance of the note and the four annual note payments.

Note: For a compound transaction, if an amount box does not require an entry, leave it blank. For the Year 4 entry (due to rounding), adjust Notes Payableup or down to ensure that debits equal credits.

Year 1 Jan. 1
Year 1 Dec. 31
Year 2 Dec. 31
Year 3 Dec. 31
Year 4 Dec. 31

c. How will the annual note payment be reported in the Year 1 income statement?
of $ would be reported on the income statement.

Answer 1

Answer a.
Amortization of Installment Notes
Year Ending Dec 31	Jan 1, Carrying Amount	Note Payment (Cash Paid)	Interest Expense (8% of Jan 1 Note Carrying Amount)	Decrease in Notes Payable	Dec 31, Carrying Amount
Year 1	33,000	9,963	2,640	7,323	25,677
Year 2	25,677	9,963	2,054	7,909	17,768
Year 3	17,768	9,963	1,421	8,542	9,227
Year 4	9,227	9,963	736	9,227	(0)

Answer b.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
Year 1 Jan 1	Cash	33,000
	Notes Payable		33,000
	(record the amount borrowed from Campbell Bank)
Year 1 Dec 31	Interest Expense	2,640
	Notes Payable	7,323
	Cash		9,963
	(record the installment paid)
Year 2 Dec 31	Interest Expense	2,054
	Notes Payable	7,909
	Cash		9,963
	(record the installment paid)
Year 3 Dec 31	Interest Expense	1,421
	Notes Payable	8,542
	Cash		9,963
	(record the installment paid)
Year 4 Dec 31	Interest Expense	736
	Notes Payable	9,227
	Cash		9,963
	(record the installment paid)
Answer c.
	Income Statement
	For the Year Ended Year 1
	Other Inome or Expense
	Interest Expense	2,640
	Balance Sheet (Partial)
	As on Dec 31, Year 1
	Liabilities
	Current Liabilities
	Notes Payable (Current Portion)	7,909
	Long Term Liabilties
	Notes Payable (Long Term debt)	17,768