Question

Check my work American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. In payment for the $5.3 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 10%. (FV of $1. PV of $1, EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entry for American Food Services' purchase of the machine on January 1, 2021. 2. Prepare an amortization schedule for the four-year term of the installment note. 3. Prepare the journal entry for the first installment payment on December 31, 2021. 4. Prepare the journal entry for the third installment payment on December 31, 2023. Complete this question by entering your answers in the tabs below. Reg 2 Req 1 3 and 4 Prepare an amortization schedule for the four-year term of the installment note. (Enter your answers in whole dollars.) Dec.31 Cash Payment Effective Intere+ le latere Decrease in Balance Outstanding Balance 2021 D 2022 2023 2024 Reg 13 and 4 > < Prev 12 of 17 !! Next > - 10 0 m d I ONA W x

Answer 1

1)

Date	Account title	Debit	credit
1 Jan 2021	Machinery	5,300,000
	Note payable		5,300,000

2)

Dec 31	Cash payment	Effective interest	Decrease in balance	Outstanding balance
				5,300,000
2021	1671993	5300000*10%=530000	1671993-530000= 1141993	5300000-1141993= 4158007
2022	1671993	4158007*10%= 415801	1671993-415801= 1256192	4158007-1256192= 2901815
2023	1671993	290181	1381812	1520003
2024	1671993	151990 **(difference is due to rounding off thus adjusted for)	1520003	0
Total	6687972

**Cash payment = Outstanding balance /PVA10%,4

                       = 5,300,000 /3.16987

                       = 1671993 rounded

Find present value annuity factor from table at 10% for 4 years

3& 4).

Date	Account title	Debit	credit
31 Dec 2021	Note payable	1141993
	Interest expense	530000
	cash		1671993
31 Dec 2023	Note payable	1381812
	Interest expense	290181
	cash		1671993