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Entries for Installment Note Transactions On January 1, Year 1, Bryson Company obtained a $33,000, four-year,...

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.

Solutions

Expert Solution

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

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