Entries for Installment Note Transactions on January 1 Year 1 Bryson Company obt

Question

Entries for Installment Note Transactions on January 1 Year 1 Bryson Company obtained a S32,000 four-year, 11% installment note om campbell Bank. The note equires annual payments of SO 3H. beginning on December 3,Yean a. Prepare an amortization 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 elther up or down to ensure that the Carrying Amount zeroes out. table for this installment note, similiar to the one Amortization of Installment Notes Year Ending DecemberJanuary Interest Expense (11% of January 1 Note Carrying Amount) Decrease in Note Payment Cash Paid) Carrying Amount Carrying Amount Notes Payable 31 Year 1 Year 2 Year 4

Explanation / Answer

1) Computation of equal note payments It was given in the question ittself that note payment was anually $ 10314 2) Enter the principal amount in beginning balance blank cell 3) calculate the interest expense by multiplying beginning balance by the interest rate given i.e., 32000 * 11% 4)Enter the note payment paid o.e., $ 10314 5) Deterimine the amount of principal reduction by finding the difference between cash payment and amount charged to interest i.e., 10314-3520 = 6794 6) Then calcluate the ending carrying amount by beginning balance less decrease in notes payable (Round off to nearest numbers ) Amortization of Installments notes Year ending dec 31 Jan-01 Note payment Interest expense Decrease in Notes payable December 31 Carrying amount Carrying amount (Cash paid) (11% of January 1 note carrying amount) Year 1 32000 10314 3520 6794 25206 Year 2 25206 10314 2773 7541 17665 Year 3 17665 10314 1943 8371 9294 Year 4 9294 10314 1020 9294 0 41256 9256 32000 Journalizing the entries : Year 1 Jan - 1 Cash A/c      Dr 32000 To notes payable 32000 Year 1 Dec 31 Interest expense A/c Dr 3520 Notes payable A/C      Dr 6794     To cash A/c 10314 Year 2 Dec 31 Interest expense A/c Dr 2773 Notes payable A/C      Dr 7541     To cash A/c 10314 Year 3 Dec 31 Interest expense A/c Dr 1943 Notes payable A/C      Dr 8371     To cash A/c 10314 Year 4 Dec 31 Interest expense A/c Dr 1020 Notes payable A/C      Dr 9294     To cash A/c 10314 Insatllment notes payment would be reported as follows in the income statement particulars Amount Revenue XXXX Less : Operating expenses i) interest on notes payable 3520 Under the head operating expense , interest on notes payable would be shown at a amount of $ 3520.

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