Entries for Installment Note Transactions On January 1, Year 1, Bryson Company obtained a $66,000, four-year, 8% installment note from Campbell Bank. The note requires annual payments of $19,927, 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 Amount zeroes out. Amortization of Installment Notes Interest Expense Ending (8% of January 1 December 31 January 1 Note Payment Decrease in December Note Carrying Carrying Carrying Amount (Cash Paid) Amount) Notes Payable Amount Year 31 Year 1 Year 2 Year 3 Year 4 0 b. Journalize the entries for the issuance of the note and the four annual note payments. Note: For a compound transaction, if an amount box does not require an entry, leave it blank. For the Year 4 entry (due to rounding), adjust Notes Payable up or down to ensure that debits equal credits. Year 1 Jan. 1 Year 1 Dec. 31 Year 2 Dec. 31 III III III III I III III III III Year 3 Dec. 31 Year 4 Dec. 31 c. How will the annual note payment be reported in the Year 1 income statement? would be reported on the income statement Amortization of Installment Notes EXHIBIT 4 Year Ending December 31 2044 2045 2016 2017 2018 January 1 Carrying Amount $24,000 19,742 15,229 10,445 5,374 Note Payment (Cash Paid) $ 5,698 5,698 5,698 5,698 5,698 $28,490 Interest Expense (6% of January 1 Note Carrying Amount) $ 1,440 (6% of $24,000) 1,185 66% of $19,742) 914 16% of $15,229) 627 16% of $10,445) 324" (6% of $5,374) $4,490 D Decrease in Notes Payable (B-C) $ 4,258 4,513 4,784 5,071 5,374 $24,000 December 31 Carrying Amount (A-D) $19742 15,229 10,445 5,374 "Rounded (55,374 - 55,698). Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $14,700,000 of five-year, 12% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 13%, resulting in Chin Company receiving cash of $14,171,679. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar) 3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) For a compound transaction, If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. 1. III III III III III 3 2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar) For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. 2. III III 110 110 b. Determine the amount of the bond interest expense for the first year. c. Why was the company able to issue the bonds for only $14,171,679 rather than for the face amount of $14,700,000? The market rate of interest is the contract rate of interest
