Fast Freight Truck Company offers a truck to your client for $100,000 in exchange for an installment note to be paid with 16 equal quarterly payments over 4 years at a 1% annual rate. There is a required $10,000 down payment. Your research indicates that the normal borrowing cost for the buyer is 5% annual.

Calculate the required payment

Prepare the legal (1%) amortization schedule provided by Fast Freight to your client, for the first two quarters:

Record the purchase of the truck by your client:

4. Prepare the effective interest amortization schedule for the first two quarters that reflects the actual present value of the loan:

5 Record the first quarter entry to record the first payment of principal and interest.

Suppose that your client pays off the loan right after making the second payment, record the entry.