Cameron-Brown, Inc., constructed for Harmon Distributors a warehouse that was co

Question

Cameron-Brown, Inc., constructed for Harmon Distributors a warehouse that was completed and ready for occupancy on January 2, 2016. Harmon paid for the warehouse by issuing a $900,000, four-year note that required 7% interest to be paid on December 31 of each year. The warehouse was custom-built for Harmon, so its cash price was not known. By comparison with similar transactions, it was determined that an appropriate interest rate was 10%. Required: 1. Prepare the journal entry for Harmon’s purchase of the warehouse on January 2, 2016. 2. Prepare (a) an amortization schedule for the four-year term of the note and (b) the journal entry for Harmon’s first interest payment on December 31, 2016.

Explanation / Answer

Amortization Schedule

Date

2019

1 Warehouse $               900,000        Notes Payable $               900,000 2

Date

Interest Principal Balance 2016 $             56,600 $           202,019 $           697,981 2017 $             41,996 $           216,623 $           481,358 2018 $             26,337 $           232,283 $           249,075

2019

$             9,545 $         249,075 $                   -   $               134,478 $               900,000 2 b Intersest Expense $                  63,000        Interest on Notes Payable $                  63,000 Interest on Notes Payable $                  63,000        Cash $                  63,000

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