Question

Entries for Installment Note Transactions

On January 1, Year 1, Bryson Company obtained a $26,000, four-year, 12% installment note from Campbell Bank. The note requires annual payments of $8,560, 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.

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 Payable up or down to ensure that debits equal credits.

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

Req a:
Amort Chrt
Year	Payment	Interest	Principal		balance
			Repayment		Outstanding at end
01.01Yr1					26000
31.12Yr1	8560	3120	5440		20560
31.12 Yr2	8560	2467	6093		14467
31.12 Yr3	8560	1736	6824		7643
31.12.Yr4	8560	917	7643		0
Req b:
Journal entries:
Date	Accounts title and explanations				Debit $	Credit $
Jan 01YR1	Cash account				26000
	Notes payable					26000
Dec31 Yr1	Notes payable				5440
	Interest expense				3120
	Cash account					8560
Dec31 Yr2	Notes payable				6093
	Interest expense				2467
	Cash account					8560
Dec31 Yr3	Notes payable				6824
	Interest expense				1736
	Cash account					8560
Dec31 Yr4	Notes payable				7643
	Interest expense				917
	Cash account					8560
Req c:
Interest expense of $ 3120 would be reported in Income Statemente