Question

Exercise 14-20 Installment note; amortization schedule (LO14-3) 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%. (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, 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. 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 Interest Decrease in Balance 1.901.386 2018 2019 2020 2021 649,000 511,2383 35.832,121 1.901,386 1.901.385 X Outstanding Balance 5.900.000 4,647,641 3.257.493 1.714,428 1,252,3863 1,390,148 1,543,0653 1,714,428 1.901.386 03 186.958

Answer 1

Requirement 1:
Date	General Journal	Debit	Credit
1-Jan-18	Equipment	$5,900,000
	Notes Payable		$5,900,000
Requirement 2 : Amortization Schedule :
We will use PVA of $1 table for calculation.
PVA of $1 for n=4, i=11%		3.10245
So, yearly installment is $ 5,900,000 / 3.10245		1,901,725
31-Dec	Cash Payment	Effective Interest	Decrease in Balance	Outstanding Balance
				$5,900,000
2018	1,901,725	$649,000	$1,252,725	$4,647,275
2019	1,901,725	$511,200	$1,390,525	$3,256,749
2020	1,901,725	$358,242	$1,543,483	$1,713,266
2021	1,901,725	$188,459	$1,713,266	$0
Requirement 3 and 4:
Date	General Journal	Debit	Credit
31-Dec-18	Notes Payable	$               1,252,725
	Interest Expense	$                  649,000
	Bank		$                      1,901,725
31-Dec-20	Notes Payable	$               1,543,483
	Interest Expense	$                  358,242
	Bank		$                      1,901,725