This is a two-part problem. On January 1, 2015 Royal Flush, Inc. borrows $300,00
ID: 2469366 • Letter: T
Question
This is a two-part problem. On January 1, 2015 Royal Flush, Inc. borrows $300,000 cash from the bank by signing a three-year, 5% installment note. The note requires three equal payments of $110,162 of accrued interest and principal on December 31 of each year for the next four years. The first payment is due Dec 31, 2015.
Part 1. Prepare the amortization table for this installment note using the template below. Hint: The ending balance of the loan better be zero at the end of 2017!
1. Amortization table for the loan
Payments
Period Ending
Date
(A)
Beginning Balance [Prior (E)]
(B)
Debit Interest Expense [5% x (A)]
+
(C)
Debit Notes Payable [(D) - (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending Balance [(A) - (C)]
2015......
2016......
2017......
Part 2. Part 2. Prepare the journal entries for Royal Flush, Inc. to record the loan on January 1, 2015 and the first payment due on December 31, 2015.
Date Account Name Debit Credit
Payments
Period Ending
Date
(A)
Beginning Balance [Prior (E)]
(B)
Debit Interest Expense [5% x (A)]
+
(C)
Debit Notes Payable [(D) - (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending Balance [(A) - (C)]
2015......
2016......
2017......
Explanation / Answer
1) A B C D E Period Beginning Debit Interest expense Debit notes Credit Ending balance Ending Date Balance payable A (A * 5%) + D-B = Cash 2015 300000 15000 + 95162 = 110162 204838 2016 204838 10241 + 99921 = 110162 104917 2017 104917 5245 + 104917 = 110162 0 2) 1/1/15 Cash Dr 300000 Notes Payable Cr 300000 ( To record receipt of loan in lieu of notes payable) 12/31/15 Notes Payable Dr 95162 Interest Expense Dr 15000 Cash Cr 110162 ( To record payment of 1st instalment)
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