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Asked Dec 19, 2019
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On January 1, Year 1, Bryson Company obtained a $147,750, four-year, 7% installment note from Campbell Bank. The note requires annual payments of $43,620, beginning on December 31, Year 1.
a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 4.
b. Journalize the entries for the issuance of the note and the four annual note payments.
c. Describe how the annual note payment would be reported in the Year 1 income statement.

Exhibit 4 Attached

A
B
D
January 1
Carrying
Interest Expense (6% of
January 1 Note Carrying
Amount)
December 31
Decrease in
Year Ending
Notes Payable
(B – C)
$ 4,258
Note Payment
(Cash Paid)
$ 5,698
Carrying
Amount (A – D)
December 31
Amount
$ 1,440
(6% of $24,000)
(6% of $19,742)
$24,000
20Y4
$19,742
20Y5
5,698
4,513
19,742
1,185
15,229
(6% of $15,229)
20Υ6
5,698
15,229
914
4,784
10,445
(6% of $10,445)
20Υ7
10,445
5,698
627
5,071
5,374
5,698
$28,490
324* (6% of $5,374)
20Υ8
5,374
5,374
$4,490
$24,000
*Rounded ($5,374 – $5,698).
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A B D January 1 Carrying Interest Expense (6% of January 1 Note Carrying Amount) December 31 Decrease in Year Ending Notes Payable (B – C) $ 4,258 Note Payment (Cash Paid) $ 5,698 Carrying Amount (A – D) December 31 Amount $ 1,440 (6% of $24,000) (6% of $19,742) $24,000 20Y4 $19,742 20Y5 5,698 4,513 19,742 1,185 15,229 (6% of $15,229) 20Υ6 5,698 15,229 914 4,784 10,445 (6% of $10,445) 20Υ7 10,445 5,698 627 5,071 5,374 5,698 $28,490 324* (6% of $5,374) 20Υ8 5,374 5,374 $4,490 $24,000 *Rounded ($5,374 – $5,698).

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Expert Answer

Step 1

a.

 

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Working notes: Calculate interest expense for Year 1. Interest expense = 7% x January 1 Note Carrying amount = 7% x $147, 750 - $10, 343 (1) %3D Calculate interest expense for Year 2. Interest expense = 7% x January 1 Note Carrying amount = 7% x $114, 473 = $8, 013 (2) Calculate interest expense for Year 3. Interest expense = 7% × January 1 Note Carrying amount = 7% x $78, 866 = $5, 521 %3D (3) Calculate interest expense for Year 4. Interest expense = 7% x January 1 Note Carrying amount = 7% x $40, 767 $2, 853 (rounded) (4) %3D

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Step 2
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Prepare an amortization table for the installment note. Amortization schedule of Installment Notes |в D Decrease December in Notes Payable Carrying Interest January Note Payment December Carrying (Cash Amount Paid) Year Expense (7% of January 1 Note Carrying Amount) 31 Ending Amount 31 |(A-D) (B-C) Year 1 $147,750 $43,620 $10,343 (1) $114,473 $33,277 $114,473 $43,620 Year 2 $8,013 (2) $78,866 $35,607 $5,521 (3) Year 3 $78,866 $43,620 $38,099 $40,767 Year 4 $40,767 $2,853 (4) $40,767 $43,620 $174,480 $26,730 Total $147,750

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Step 3

b.

 

...
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Prepare journal entry to record the issuance of the installment note. Post Debit Credit Account Title and Explanation Date Ref. ($) ($) Year 1, Cash January 147,750 Notes Payable 147,750 (To record the issuance of 7% note payable for cash)

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