On October 1, 2007, Walla signed a 4-year, \(\$ 100,000\) note payable to Vicksburg National Bank in conjunction with the purchase of equipment. The note calls for interest at an annual rate of 12 percent ( 1 percent per month). The note is fully amortizing over a period of 48 months.
The bank sent Walla an amortization table showing the allocation of monthly payments between interest and principal over the life of the loan. A small part of this amortization table is illustrated below. (For convenience, amounts have been rounded to the nearest dollar.)

Instructions
a. Explain whether the amounts of interest expense and the reductions in the unpaid principal are likely to change in any predictable pattern from month to month.
b. Prepare journal entries to record the first two monthly payments on this note.
c. Complete this amortization table for two more monthly installments.
d. Will any amounts relating to this 4 -year note be classified as current liabilities in Walla's December 31, 2007, balance sheet? Explain, but you need not compute any additional dollar amounts.

Transcribed Image Text:

AMORTIZATION TABLE (12%, 4-Year Note Payable for $100,000. Payable in 48 Monthly Installments of $2,633) Interest Period Payment Monthly Interest Principal Unpaid Date Payment Expense Reduction Balance Issue date Oct. 1, 2007 $100,000 1 Nov. 1 $2,633 $1,000 $1,633 98,367 2 Dec. 1 2,633 984 1,649 96,718