Braxton Technologies, Inc., constructed a conveyor for A&G Warehousers that was
ID: 2549140 • Letter: B
Question
Braxton Technologies, Inc., constructed a conveyor for A&G Warehousers that was completed and ready for use on January 1, 2018. A&G paid for the conveyor by issuing a $100,000, four-year note that specified 4% interest to be paid on December 31 of each year, and the note is to be repaid at the end of four years. The conveyor was custom-built for A&G, so its cash price was unknown. By comparison with similar transactions it was determined that a reasonable interest rate was 12%. (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 A&G’s purchase of the conveyor on January 1, 2018.
2. Prepare an amortization schedule for the four-year term of the note.
3. Prepare the journal entry for A&G’s third interest payment on December 31, 2020.
4. If A&G’s note had been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2018, what would be the amount of each installment?
5. By considering the installment payment of required 4. Prepare an amortization schedule for the four-year term of the installment note.
6. Prepare the journal entry for A&G’s third installment payment on December 31, 2020.
Explanation / Answer
1
Prepare a journal entry for A&G purchase of the conveyor on january 1 2018
Date
General journal
Debit
credit
Jan-01
equipment
75700
Discount on notes payable
24300
Notes Payable
100000
Interest : 4000 *3.0373
12150
Principal: 100000*0.6355
63550
75700
2
Prepare an amortization schedule for the four year term of the note
YEAR
CASH PAYMENT
effective Balance
Increase in Balance
Outstanding Balance
75700
2018
4000
9084
5084
80784
2019
4000
9694
5694
86478
2020
4000
10377
6377
92855
2021
4000
11145
7145
100000
3
Prepare a journal entry for A & G Third interest Payment on december 31 2020
Date
General journal
Debit
credit
Dec 31 2020
Interest expense
10377
Discount on notes Payable
6377
Cash
4000
4
IF A& G note had been an installment note to be paid in four equal installments
Installment Payment
24923.45
(75700/3.0373)
5
Prepare an amortization schedule for four year term of the installment note
YEAR
CASH PAYMENT
effective Balance
Decrease in Balance
Outstanding Balance
75700
2018
24923.45
9084
15839
59861
2019
24923.45
7183
17740
42120
2020
24923.45
5056
19867
22253
2021
24923.45
2670
22253
0
6
Prepare the journal entry for A&G Third installment payment on december 31 2020
Date
General journal
Debit
credit
Dec 31 2020
Interest expense
19867
Notes Payable
5056
Cash
24923
1
Prepare a journal entry for A&G purchase of the conveyor on january 1 2018
Date
General journal
Debit
credit
Jan-01
equipment
75700
Discount on notes payable
24300
Notes Payable
100000
Interest : 4000 *3.0373
12150
Principal: 100000*0.6355
63550
75700
2
Prepare an amortization schedule for the four year term of the note
YEAR
CASH PAYMENT
effective Balance
Increase in Balance
Outstanding Balance
75700
2018
4000
9084
5084
80784
2019
4000
9694
5694
86478
2020
4000
10377
6377
92855
2021
4000
11145
7145
100000
3
Prepare a journal entry for A & G Third interest Payment on december 31 2020
Date
General journal
Debit
credit
Dec 31 2020
Interest expense
10377
Discount on notes Payable
6377
Cash
4000
4
IF A& G note had been an installment note to be paid in four equal installments
Installment Payment
24923.45
(75700/3.0373)
5
Prepare an amortization schedule for four year term of the installment note
YEAR
CASH PAYMENT
effective Balance
Decrease in Balance
Outstanding Balance
75700
2018
24923.45
9084
15839
59861
2019
24923.45
7183
17740
42120
2020
24923.45
5056
19867
22253
2021
24923.45
2670
22253
0
6
Prepare the journal entry for A&G Third installment payment on december 31 2020
Date
General journal
Debit
credit
Dec 31 2020
Interest expense
19867
Notes Payable
5056
Cash
24923
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