Braxton Technologies, Inc., constructed a conveyor for A&G; Warehousers that was

Question

Braxton Technologies, Inc., constructed a conveyor for A&G; Warehousers that was completed and ready for use on January 1, 2018. A&G; paid for the conveyor by issuing a $100,000, four-year note that specified 7% interest to be paid on December 31 of each year, and the note is to be repaid at the end of four years. The conveyor was custom-built for A&G;, so its cash price was unknown. By comparison with similar transactions it was determined that a reasonable interest rate was 12%. Ey of $1 PV of $1. EV of $1 p A of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. Prepare the journal entry for A&G;'s purchase of the conveyor on January 1, 2018. 3. Prepare the journal entry for A&G;'s third interest payment on December 31, 2020. 2. Prepare an amortization schedule for the four-year term of the note. 4. If A&G;'s note had been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2018, what would be the amount of each installment? 5. By considering the installment payment of required 4. Prepare an amortization schedule for the four-year term of the installment note 6. Prepare the journal entry for A&G;'s third installment payment on December 31, 2020.

Explanation / Answer

Fair Value of Bond Interest Discounting Factor Amount 2018 7000             0.8929        6,250.00 2019 7000             0.7972        5,580.36 2020 7000             0.7118        4,982.46 2021 7000             0.6355        4,448.63 2021 100000             0.6355     63,551.81 Fair Value of Bond     84,813.25 General Journal Debit Credit 1-Jan-18 Equipment    84,813.25 Discount on Issue of Notes    15,186.75 Notes Payable    100,000.00 (Being Conveyor Purchased by issuing Notes) Cash Payment Effective Interest Increase in balance Outstanding Balance           84,813.25 2018             7,000.00       10,177.59        3,177.59           87,990.84 2019             7,000.00       10,558.90        3,558.90           91,549.74 2020             7,000.00       10,985.97        3,985.97           95,535.71 2021             7,000.00       11,464.29        4,464.29         100,000.00 General Journal Debit Credit 31-Dec-20 Interest expenses    10,985.97 Discount on Issue of Notes        3,985.97 Cash        7,000.00 (Being Interest Payment and Discount Amortized) Annuity Factor(12%,4)                 3.0373 Installment payment 84813.25/3.0373       27,923.90 Cash Payment Effective Interest Decrease in balance Outstanding Balance           84,813.25 2018           27,923.90       10,177.59 (17,746.31)           67,066.95 2019           27,923.90          8,048.03 (19,875.86)           47,191.08 2020           27,923.90          5,662.93 (22,260.97)           24,930.12 2021           27,923.90          2,991.61 (24,930.12)                    (0.00) General Journal Debit Credit 31-Dec-20 Interest expenses      5,662.93 Note Payable    25,000.00 Discount on Issue of Notes        2,739.03 Cash      27,923.90

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