Question

Exercise 14-20 Installment note; amortization schedule (L014-3) American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. In payment for the $5.9 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 11%. (EV of $1. PV of $1. FVA 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, 2018 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, 2018 4. Prepare the journal entry for the third installment payment on December 31, 2020. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 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 Interest Decrease in Balance 2018 2019 Outstanding Balance 4,576,107 3,604,479 2,525,972 1,328.829 1,475,000 X 1,475,000 1,475,000 % 1,475,000 503,372 396,493 X 277,857 146,171 971,628 X 1,078,507 1,197,143 1.328,829 2020 2021

Answer 1

Solution 1 Dr./cr. Date Particulars 1-Jan-18 packing machine To notes Payable Dr. Amount 5,900,000.00 5,900,000.00 Solution 2 Loan Information 5,900,000.00 11.00% Summary Rate (per period) Total Payments Total Interest 11.000% 7,606,901.90 1,706,901.90 Loan Amount Annual Interest Rate Term of Loan in Years First Payment Date Payment Frequency Compound Period Payment Type 12/31/2018 Annual Annual End of Period Amortization Schedule Due No Date Payment Due Additional Payment Interest Principal Balance 12/31/18 12/31/19 12/31/20 12/31/21 1,901,725.47 1,901,725.47 1,901,725.47 1,901,725.49 649,000.00 511,200.20 358,242.42 188,459.28 1,252,725.47 1,390,525.27 1,543,483.05 1,713,266.21 5,900,000.00 4,647,274.53 3,256,749.26 1,713,266.21 0.00

Solutiom 3 Dr./Cr. Date Particulars 31-Dec-18 interest a/c Notes payable To cash Amount 649,000.00 1,252,725.47 1,901,725.47 Solution 4 31-Dec-20 interest a/c Notes payable To cash 358,242.42 1,543,483.05 1,901,725.47