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16 August, 10:52

On January 1, 2019, a company borrows $20,000 cash by signing a four-year, 7% installment note. The note requires four equal payments of $5,905, consisting of accrued interest and principal on December 31 of each year from 2019 through 2022. Prepare the journal entries for the company to record the note's issuance and the four payments. (Round your intermediate calculations and final answers to the nearest dollar amount.)

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  1. 16 August, 12:07
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    Issue

    Cash (debit) $20,000

    Note Payable (credit) $20,000

    2019

    J1

    Finance Charge $1,400 (debit)

    Note Payable $1,400 (credit)

    J2

    Note Payable (debit) $5,905

    Cash (credit) $5,905

    2020

    J1

    Finance Charge $1,498 (debit)

    Note Payable $1,498 (credit)

    J2

    Note Payable (debit) $5,905

    Cash (credit) $5,905

    2021

    J1

    Finance Charge $1,596 (debit)

    Note Payable $1,596 (credit)

    J2

    Note Payable (debit) $5,905

    Cash (credit) $5,905

    2022

    J1

    Finance Charge $1,708 (debit)

    Note Payable $1,708 (credit)

    J2

    Note Payable (debit) $5,905

    Cash (credit) $5,905

    Explanation:

    First Constract an Amortization Schedue

    Using a Financial Calculator, the Parameters can be set as:

    Pv = $20,000

    n = 4

    i = 7%

    Pmt = $5,905

    P/yr = 1

    Fv = 0

    So, When the Note is issued the record will be as follows:

    Cash (debit) $20,000

    Note Payable (credit) $20,000

    Interest on the Note for the year end 2019 will be

    Finance Charge $1,400 (debit)

    Note Payable $1,400 (credit)

    Payment on the Note for the year end 2019 will be

    Note Payable (debit) $5,905

    Cash (credit) $5,905
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