EXAMPLE 14.3 Note Payable with Amortization Table: Installment Loan PROBLEM: AS&K, Inc. borrowed $250,000 by issuing an 8%, three-year note on January 1, 2014. AS&K must make payments every six months, beginning June 30, 2014. The note will be fully paid at maturity on December 31, 2016. AS&K prepares annual financial statements. Prepare the amortization table for this note, along with any necessary journal entries. Also prepare the t-account for the notes payable account. SOLUTION: We first compute the semiannual payment. Given Solve for PMT N I/Y PV PMT FV Excel Formula 0 (47,690) PMTI0 04,6,250000,0 6 4.00% 250,000 We then prepare the amortization table. Interest for each period is the beginning balance of the note payable times the 4% periodic interest rate. The principal payment is the total payment of $47,690 less the interest payment. The ending note balance is the beginning balance of the note payable less the principal payment. Carrying Total Interest Principal Period Date Payment Payment Payment Value (b)=4% x (d) Prior (a) Prior (d) (c)=(a)-(b) (d)-(c) 0 $250,000 1 June 30, 2014 $47690 $10,000 $37690 212.310 2 December 31, 2014 47690 8.492 39.198 173.112 3 June 30, 2015 47690 6.924 40,766 132,346 4 December 31, 2015 47690 5.294 42.396 89.950 5 June 30, 2016 42690 3,598 44.092 45.858 6 December 31, 2016 47690 1,832 45.858 0 Rounded AS&K makes the following journal entry at inception: Account Cash Long-Term Notes Payable January 1, 2014 250,000 250,000 AS&K uses the information contained in the amortization table to record the semiannual payments. The payments made for an installment loan contain principal plus interest. AS&K makes the following journal entries to record the payments in 2014: Account June 30, 2014 December 31, 2014 Interest Expense 10,000 8,492 Long-Term Notes Payable 37690 39,198 47690 Cash 47690 Continued