On November 30, 2017, Calla Resources Ltd. borrowed $120,000 from a bank by sign

Question

On November 30, 2017, Calla Resources Ltd. borrowed $120,000 from a bank by signing a four-year instalment note bearing interest at 10%. The terms of the note require equal payments each year on November 30, starting November 30, 2018. Use TABLE 14A.2

Required:
1. Calculate the size of each instalment payment. (Do not round intermediate calculations. Round the final answer to the nearest whole dollar.)

2. Complete an instalment note amortization schedule for this note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.)

3. Present the journal entries that Calla would make to record accrued interest as of December 31, 2017 (the end of the annual reporting period), and the first payment on the note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

1.Record the accrued interest on the installment note payable.

2.Record the first payment made on installment note.

4. Now assume that the note does not require equal payments but does require four payments that include accrued interest and an equal amount of principal in each payment. Complete an instalment note amortization schedule for this note. Present the journal entries that Calla would make to record accrued interest as of December 31, 2017 (the end of the annual reporting period), and the first payment on the note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.)

1.Record the accrued interest on the installment note payable.

2.Record the first payment made on installment note.

Payment Rate Periods 1% 2% 3% 5% 6% 7% 8% 10% 12% 0.9901 0.4804 0.70 0.9615 0.524 0.9434 0.9346 0.9259 0.9174 0.9091 0.8929 0.8696 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.6901 1.6257 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.486 2.4018 2.2832 3.9020 3.8077 3.7171 3.62 3.5460 3.4651 3.3872 3.3121 3.2397 3.169 3.0373 2.8550 4.8534 4.7135 4.5774.4518 4.325 4.2124 4.1002 3.9927 3.8897 3.7408 3.6048 3.3522 5.7955 5.6014 5.4172 5.2421 5.0757 4.173 4.7665 4.622 4.4859 4.3553 4.1114 3.7845 6.7282 6.4720 6.2303 6.0021 5.78645.5824 5.3893 5.2064 5.0330 4.8684 4.5638 4.1604 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 4.9676 4.4873 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.246 5.952 5.759O 5.3282 4.7716 4.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.6502 5.0188 11 10.3676 9.7868 .2526 8.7605 8.3064 7.8869 7.4987 7.1340 6.8052 6.4951 5.9377 5.2337 12 11.2551 10.5753 q.q540 q.3851 8.8633 8.3838 7.4427 7.5361 7.1607 6.8137 6.1944 6.4206 12.1337 11.3484 10.6350 9.9856 9.3436 8.8527 8.3577 7.9038 7.486 7.1034 6.4235 5.5831 .250 8.7455 8.2442 7.7862 7.3667 6.6282 5.7245 15 13.8651 12.8493 11.9379 11.1184 10.3797 q.7122 q1074 8.5595 8.0607 T.6061 6.8109 58474 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237 6.9740 5.542 15.5623 14.291 13.1661 12.1657 11.2741 10.4773 .7632 .1216 8.5436 8.0216 7.116 6.0472 18 16.3483 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 .3719 8.7556 8.2014 7.247 6.1280 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 .6036 8.9501 8.364 7.3658 6.1982 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5440 9.8181 .1285 8.5136 7.4694 6.2593 25 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226 .0770 7.8431 6.4641 30 25.8077 22.365 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 10.2737 9.426 8.0552 6.5660 29.4086 24.9986 21.4872 18.6646 16.3742 14.4982 12.9477 11.6546 10.5668 9.6442 8.1755 6.6166 40 32.8347 27.3555 23.1148 19.7928 17.1541 15.0463 13.3317 11.9246 10.7574 4.7741 8.2438 6.6418 2 3 4 6 8 10 13 14 13.0037 12.1062 11.2961 10.5631 4.8986 16 17 19 20 35 TABLE 14A.2 Present Value of an Annuity of 1 Period

Explanation / Answer

1. Let x be the amount paid at the end of each of the 4 years. Then,

120,000 (1 + 10/100)4 = x(1 + 10/100)3 +  x(1 + 10/100)2 + x(1 + 10/100)1  + x

120,000(1.1)4  = 1.331x + 1.21x + 1.1x + x

175,692 = 4.641x

Therefore, x = 175,692 / 4.641

= 37,856

Thus the size of each instalment payment would be $37,856

2. The instalment note amortization schedule is as follows:

3. On Dec 31, 2017, 1 month interest will be accrued for which entry will be passed as follows:

On 30th November, 2018, following entries will be passed for interest and instalment payment

(To record payment of instalment on notes payable)

4. In case, the notes require four payments that include accrued interest and an equal amount of principal in each payment, the amount of principal amount to be paid in each instalment will be 120,000 / 4 = $30,000.

The instalment note amortization schedule for this note will be as follows:

On Dec 31, 2017, 1 month interest will be accrued for which entry will be passed as follows:

On 30th November, 2018, following entries will be passed for interest and instalment payment

Payments Period Ending Beginning Balance
(A) Period Interest Expense
(B) = (A) x 10% Debit Notes Payable
(C) Credit Cash
(D) Ending Balance
(A) + (B) - (C) Nov. 30/18       120,000 12,000 37,856 37,856 94,144 Nov. 30/19         94,144 9,414 37,856 37,856 65,702 Nov. 30/20         65,702 6,570 37,856 37,856 34,417 Nov. 30/21         34,417 3,442 37,858 37,858 -   Totals 31,426 151,426 151,426

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