Question
5. Anunoby Ltd. sold equipment to Lowry Corporation for $150,000 on January 1, 2020. Lowry Corporation made a cash down payment on the equipment of
5. Anunoby Ltd. sold equipment to Lowry Corporation for $150,000 on January 1, 2020. Lowry Corporation made a cash down payment on the equipment of $30,000 and signed a 9%, $120,000 note payable for the balance. The note payable is due in three equal instalments on December 31, 2020, 2021 and 2022. Each payment includes both principal and interest on the unpaid balance.
Required:
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a) What is the amount of the equal annual payment that Lowry Corporation must make each year? Show how you calculated this amount.
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b) What is the total amount of interest on the note over the period of the three years? Show how you calculated this amount.
c) Complete the following table:
Debt Payment Schedule Cash Interest
Unpaid Principal
Date Payment
Total
Expense Decrease in Principal
Jan.1/20 | |||
Dec.31/20 | |||
Dec.31/21 | |||
Dec.31/22 |
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d) Prepare the journal entry for each of the three payments.
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e) Why is interest expense decreasing over time?
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