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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.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 12E
Textbook Problem
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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.

  1. a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 4.
  2. b. Journalize the entries for the issuance of the note and the four annual note payments.
  3. c. Describe how the annual note payment would be reported in the Year 1 income statement.

(a)

To determine

Prepare an amortization table for the installment note.

Explanation of Solution

Long-term notes payable: Long-term notes payable represent a legal and written promise made by the business to pay a debt with interest over a period of more than a year. It is reported under the long-term liability section of the balance sheet.

Installment note: It is a debt in which the borrower is required to pay equal periodic payments to the lender based on the term of the note.

Amortization Schedule: An amortization schedule is a table that shows the details of each loan payment allocated between the principal amount and the overdue interest along with the beginning and ending balance of the loan. From the amortization schedule of the loan, the periodical interest expense, total interest expense and total payment made are known.

Prepare an amortization table for the installment note.

Amortization schedule of Installment Notes
 ABCDE
Year Ending December 31January 1 Carrying AmountNote Payment (Cash Paid)Interest Expense (7% of January 1 Note Carrying Amount)

Decrease in Notes Payable

(BC)

December 31 Carrying Amount (AD)
Year 1$147,750$43,620$10,343 (1)$33,277$114,473
Year 2$114,473$43,620$8,013 (2)$35,607$78,866
Year 3$78,866$43,620$5,521 (3)$38,099$40,767
Year 4$40,767$43,620$2,853 (4)$40,767-
Total $174,480$26,730$147,750 

Table (1)

Working notes:

(1)

Calculate interest expense for Year 1

(b)

To determine

Journalize the issuance of the installment note and four annual note payments.

(c)

To determine

Describe how the annual note payment would be reported in the Year 1 income statement.

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Chapter 14 Solutions

Financial Accounting
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