Question

On january 1, 2014, ABC Co. sold a mining equipment to surigao mining for 1,500,000 which ABC accepted a 10% , 3-year noe payable in three equal annual payments every December 31 starting in 2014.The interest is to be paid every end of the year. The cost of the equipment to ABC Co. was 500,000.

prepared journal entry for all the transactions affecting the said sales of equipment on january 1, 2014 up to the time the note is fully paid on december 31, 2016

Answer 1

• All working forms part of the answer
• Notes Receivable for ABC is of $ 1,500,000 repayble in 3 installments.
• We need to calculate the amount of principal amount to be repaid as follows:

A	Amount of Note Payable	$                             1,500,000.00
B	No. of Installments	3
C =A / B	Annual amount of principal amount of installment	$                                 500,000.00 [1500000 / 3]

• Hence, out of $ 1,500,000, $ 500,000 will be repaid by the end of each year.
• Lets now prepare an Amortisation Schedule:

Date	Beginning Balance	Interest at 10%	Principal payment	Total Installment to be received	Ending Balance
	[A]	[B = A x 10%]	[C = $ 500,000]	[D = B + C]	[E = A - C]
Issued					$     1,500,000.00
31-Dec-14	$                             1,500,000.00	$                150,000.00	$                                   500,000.00	$       650,000.00	$     1,000,000.00
31-Dec-15	$                             1,000,000.00	$                100,000.00	$                                   500,000.00	$       600,000.00	$        500,000.00
31-Dec-16	$                                 500,000.00	$                  50,000.00	$                                   500,000.00	$       550,000.00	$                          -

• All the journal entries concerned are provided below:

Date	Accounts title	Debit	Credit
01-Jan-14	Notes Receivable	$                             1,500,000.00
	Equipment		$                500,000.00
	Gain on Sale		$            1,000,000.00
	(Equipment sold and Notes receivables accepted)
31-Dec-14	Cash	$                                 650,000.00 [see Column ‘D’ above]
	Interest revenue		$                150,000.00 [see Column ‘B’ above]
	Notes Receivables		$                500,000.00
	(1st installement received)
31-Dec-15	Cash	$                                 600,000.00 [see Column ‘D’ above]
	Interest revenue		$                100,000.00 [see Column ‘B’ above]
	Notes Receivables		$                500,000.00
	(2nd installement received)
31-Dec-16	Cash	$                                 550,000.00 [see Column ‘D’ above]
	Interest revenue		$                  50,000.00 [see Column ‘B’ above]
	Notes Receivables		$                500,000.00
	(3rd and last installement received)