Little Company borrowed $40,000 from Sockets on January 1, 2018, and signed a th

Question

Little Company borrowed $40,000 from Sockets on January 1, 2018, and signed a three-year, 6% installment note to be paid in three equal payments at the end of each year. The present value of an ordinary annuity of $1 for 3 periods at 6% is 2.67301. Required 1. Prepare the journal entry on January 1, 2018, for Sockets' lending the funds 2 Calculate the amount of one installment payment 3. Prepare an amortization schedule for the three-year term of the installment note. 4. Prepare the journal entry for Sockets' first installment payment received on December 31, 2018 5. Prepare the journal entry for Sockets third installment payment received on December 31, 2020 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Prepare the journal entry on January 1, 2018, for Sockets' lending the funds. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet Record for the sockets lending the fund on January 1, 2018.

Explanation / Answer

Answer 1 Journal entry Date Account Title Debit Credit Jan.1,2018 Note Receivable $40,000.00 Cash $40,000.00 Answer 2 Installment Payment = Borrowed amount / Present value of ordinary annuity $1 for 3 years at 6% Installment Payment = $40000 / 2.67301 = $14964 Answer 3 Amortization schedule for the three year term of the installment note Year Cash payments Effective Interest Increase in balance Outstanding balance 2018 $14,964 $2,400 $12,564 $27,436 2019 $14,964 $1,646 $13,318 $14,117 2020 $14,964 $847 $14,117 -$0 Answer 4 Journal entry Date Account Title Debit Credit Dec.31,2018 Cash $14,964 Interest Income $2,400 Note Receivable $12,564 Answer 5 Journal entry Date Account Title Debit Credit Dec.31,2020 Cash $14,964 Interest Income $847 Note Receivable $14,117

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