Question

On January 1, Year 1, Bryson Company obtained a $39,000, four-year, 10% installment note from Campbell Bank. The note requires annual payments of $12,303, beginning on December 31, Year 1.

a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 4.

Note: Round the computation of the interest expense to the nearest whole dollar. Enter all amounts as positive numbers. In Year 4, round the amount in the Decrease in Notes Payable column either up or down to ensure that the Carrying Amount zeroes out.

Amortization of Installment Notes
Year Ending December 31	January 1 Carrying Amount			Note Payment (Cash Paid)			Interest Expense (10% of January 1 Note Carrying Amount)					Decrease in Notes Payable			December 31 Carrying Amount
Year 1	$			$			$					$			$
Year 2
Year 3
Year 4															0
				$			$					$

b. Journalize the entries for the issuance of the note and the four annual note payments.

Note: For a compound transaction, if an amount box does not require an entry, leave it blank. For the Year 4 entry (due to rounding), adjust Notes Payable up or down to ensure that debits equal credits.

Year 1 Jan. 1
Year 1 Dec. 31
Year 2 Dec. 31
Year 3 Dec. 31
Year 4 Dec. 31

c. How will the annual note payment be reported in the Year 1 income statement?
  of $ would be reported on the income statement.

Answer 1

Answers

• [A]

Year Ending Dec 31	Jan 1 Carrying amount	Notes Payament Cash paid	Interest Expense	Decrease in Notes Payable	Dec 31 Carrying Amount
Year 1	$39,000	$12,303	$3,900	$8,403	$30,597
Year 2	$30,597	$12,303	$3,060	$9,243	$21,354
Year 3	$21,354	$12,303	$2,135	$10,168	$11,186
Year 4	$11,186	$12,303	$1,117	$11,186	$0

--Working

Year Ending Dec 31	Jan 1 Carrying amount	Notes Payament Cash paid	Interest Expense	Decrease in Notes Payable	Dec 31 Carrying Amount
Year 1	39000	12303	=39000*10%	=12303-3900	=39000-8403
Year 2	=39000-8403	12303	=30597*10%	=12303-3060	=30597-9243
Year 3	=30597-9243	12303	=21354*10%	=12303-2135	=21354-10168
Year 4	=21354-10168	12303	=12303-11186	11186	=11186-11186

• [B]

Date	Accounts title	Debit	Credit
Year 1 Jan 1	Cash	$39,000
	Notes Payable		$39,000
Year 1 Dec 31	Notes Payable	$8,403
	Interest Expense	$3,900
	Cash		$12,303
Year 2 Dec 31	Notes Payable	$9,243
	Interest Expense	$3,060
	Cash		$12,303
Year 3 Dec 31	Notes Payable	$10,168
	Interest Expense	$2,135
	Cash		$12,303
Year 4 Dec 31	Notes Payable	$11,186
	Interest Expense	$1,117
	Cash		$12,303

• [C]

$ 3,900 of $ 12303 will be reported on Income Statement as Interest Expense.