10. On November 1, 2016, Norwood borrows $850,000 cash from a bank by signing a
ID: 2572134 • Letter: 1
Question
10. On November 1, 2016, Norwood borrows $850,000 cash from a bank by signing a seven-year installment note bearing 5% interest. The note requires equal total payments each year on October 31. (2 points) Use the Present Value of an Annuity of 1 table to compute the amount of each of the four equal total payments a. (5 points) Complete the amortization table for this installment note. (Round all b. amounts to two decimal points.) There may be a minimal amount in the Ending Balance at the end of the seven years. This amount should be adjusted to the last cash payment in order to zero out the ending balance. Period Beginning Cash Payment Expense Notes Payable Ending Balance Ending Date 10/31/2017 10/31/2018 10/31/2019 10/31/2020 10/31/2021 10/31/2023 Include your amortization schedule calculations here: (2 points) Prepare the journal entry in which Norwood records accrued interest as of December 31, 2016 (the end of its annual reporting period). (Round your answer to 2 decimal places.) c. (2 points) Prepare the journal entry in which Norwood records the first annual payment on the note. d.Explanation / Answer
Answer a Using Present value of annuity formula, we can calculate the annual payment of note PV of annuity = P*{[1 - (1+r)^-n]/r} PV of annuity = present value of annuity = $850000 P = Periodic payment i.e. annual payment = ? r = rate of interest per annum = 5% n = number of years = 7 850000 = P*{[1 - (1+0.05)^-7]/0.05} 850000 = P*5.786373 P = 146896.85 Annual payment of note = $1,46,896.85 Answer b Amortization table for the installment note Period ending Beginning balance Cash payment Interest Expense Notes Payable Ending balance 31/10/2017 $850,000.00 $146,896.85 $42,500.00 $104,396.85 $745,603.15 31/10/2018 $745,603.15 $146,896.85 $37,280.16 $109,616.69 $635,986.46 31/10/2019 $635,986.46 $146,896.85 $31,799.32 $115,097.53 $520,888.93 31/10/2020 $520,888.93 $146,896.85 $26,044.45 $120,852.40 $400,036.53 31/10/2021 $400,036.53 $146,896.85 $20,001.83 $126,895.02 $273,141.50 31/10/2022 $273,141.50 $146,896.85 $13,657.08 $133,239.77 $139,901.73 31/10/2023 $139,901.73 $146,896.81 $6,995.09 $139,901.72 $0.00 Answer c Journal entry to record accrued interest as of Dec.31,2016 (for 2 months) Date Account Titles Debit Credit Dec.31,2016 Interest Expense $7,083.33 Interest Payable on Note $7,083.33 Answer d Journal entry to record first annual payment Date Account Titles Debit Credit Oct.31,2017 Note Payable $104,396.85 Interest Payable on Note $7,083.33 Interest Expense $35,416.67 Cash $146,896.85
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