Question

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 $4 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, 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, 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. X Answer is not complete. Complete this question by entering your answers in the tabs below. Req 2 Req 1 3 and 4 Prepare the journal entries for American Food Services' purchase of the machine on January 1, 2021, the first installment payment on December 31, 2021 and the third installment payment on December 31, 2023. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Answer 1

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Credit Debit $4,000,000 1 Date Particulars 01-Jan-21 Equipment (packing machine) Longtem note payable (Being equipment purchase fornote) $4,000,000 2 Present value annuity factor for 10% for 4 years= Note amount Annuity value [(4,000,000/3.16987) 3.16987 $4,000,000 $1,261,881 A B= (A*10%) C D= (C-B) Date Opening value of Note Interest 31-Dec-21 $4,000,000 $400,000 31-Dec-22 $3,138,119 $313,812 31-Dec-23 $2,190,050 $219,005 31-Dec-24 $1,147,174 $114,707 Installment Reduction in paid value ofnote $1,261,881 $861,881 $1,261,881 $948,069 $1,261,881 $1,042,876 $1,261,881 $1,147,174 E = (A-D) Ending value of Note $3,138,119 $2,190,050 $1,147,174 $0 + Credit Dare 3 31-Dec-21 Particulars Interest expense Longtem note payable Cash (Being first installment paid) Debit $400,000 $861,881 $1,261,881 4 31-Dec-23 $219,005 $1,042,876 Interest expense Longtem note payable Cash (Being third installment paid) $1,261,881