Entries for Installment Note Transactions On January 1, Year 1, Bryson Company o

Question

Entries for Installment Note Transactions

On January 1, Year 1, Bryson Company obtained a $32,000, four-year, 11% installment note from Campbell Bank. The note requires annual payments of $10,314, beginning on December 31, Year 1.

a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 4.

Note: Round the computation of the interest expense to the nearest whole dollar. Enter all amounts as positive numbers. In Year 4, round the amount in the Decrease in Notes Payable column either up or down to ensure that the Carrying Amountzeroes out.

b. Journalize the entries for the issuance of the note and the four annual note payments. For a compound transaction, if an amount box does not require an entry, leave it blank.

c. How will the annual note payment be reported in the Year 1 income statement?
of $ would be reported on the income statement.

Amortization of Installment Notes Year Ending
December 31
January 1
Carrying Amount
Note Payment
(Cash Paid) Interest Expense
(11% of January 1
Note Carrying
Amount)
Decrease in
Notes Payable
December 31
Carrying Amount Year 1 $ $ $ $ $ Year 2 Year 3 Year 4 0 $ $ $

Explanation / Answer

a)

Year ending

December 31

January 1

Carrying amount

Note Payment

(cash paid)

Interest Expense

(11% of January 1

Note carrying amount)

Decrease in

Notes payable

December 31

carrying amount

b) Journal Entries :

c) Bryson Company

Income Statement

for year ending Dec 31, Year 1 ( Partial )

Revenue

Less: Cost of goods sold :

Gross profit

Less: Operating Expenses

Less:

Interest Expenses $ 3,520

Year ending

December 31

January 1

Carrying amount

Note Payment

(cash paid)

Interest Expense

(11% of January 1

Note carrying amount)

Decrease in

Notes payable

December 31

carrying amount

Year 1 $32,000 $ 10,314 $ 3,520 $ 6,794 $ 25,206 Year 2 $ 25,206 $ 10,314 $ 2,773 $ 7,541 $ 17,665 Year 3 $ 17,665 $ 10,314 $ 1,943 $ 8,371 $ 9,294 Year 4 $ 9,294 $ 10,314 $ 1,020 $ 9,294 $ 0 Totals $ 41,256 $ 9,256 $ 32,000

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