On November 1, 2016, Norwood borrows $470,000 cash from a bank by signing a five

Question

On November 1, 2016, Norwood borrows $470,000 cash from a bank by signing a five-year installment note bearing 6% interest. The note requires equal total payments each year on October 31 Table B.1. Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) Required 1. Complete the below table to calculate the total amount of each installment payment. Initial Cash Proceeds Amount of annual payment PV Factor 2. Complete an amortization table for this installment note. Ending Credit Cash Balance Period Ending Beginning Debit Interest Debit Notes Date Balance Expense Payable 1031/2017 10/31/2018 10/31/2019 10/31/2020 10/31/2021 Total

Explanation / Answer

1) Initial cash proceeds PV Factor Amount of annual payment $       4,70,000 4.212364 $       1,11,576 Working: PV Factor = (1-(1+i)^-n)/i Where, = (1-(1+0.06)^-5)/0.06 i 6% = 4.212364 n 5 2) Period Ending Beginning Balance Debit Interest Expense + Debit Notes Payable = Credit cash Ending Balance Date 10/31/2017 $                  4,70,000 $           28,200 + $           83,376 $        1,11,576 $            3,86,624 10/31/2018 $                  3,86,624 $           23,197 $           88,379 $        1,11,576 $            2,98,245 10/31/2019 $                  2,98,245 $           17,895 $           93,682 $        1,11,576 $            2,04,563 10/31/2020 $                  2,04,563 $           12,274 $           99,303 $        1,11,576 $            1,05,261 10/31/2021 $                  1,05,261 $             6,316 $       1,05,261 $        1,11,576 $                    0.00 3) a) Date General Journal Debit Credit Dec 31, 2016 Interest Expense $             4,700 Interest Payable $       4,700 (To record interest accrual) Working: Annual interest expense $     28,200 Interest expense for 2 months ended on december 31 $     28,200 x 2/12 = $    4,700 b) Date General Journal Debit Credit Oct 31, 2017 Interest Expense $           23,500 Interest Payable $             4,700 Notes Payable $           83,376 Cash $ 1,11,576 (To record annual payment) Working: Annual interest expense $     28,200 Interest expense for 2 months ended on december 31 $     28,200 x 10/12 = $ 23,500

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