On 1/1/X1, Mercury Corp. takes out an installment note for $20,000 to purchase equipment for its manufacturing facility. The loan will be repaid in equal annual installments over 2 years beginning 12/31/X1. The interest rate on the loan is 12% compounded annually.

How much will each of the annual payments be?

Answer: $______

What will be the amount of total cash payments over the entire 2 years?

Answer: $____

By comparing your answer in B to the amount originally borrowed, determine the total interest expense the company will incur over the entire 2 years?

Answer: $____

Although each payment is equal in amount, a different portion of each payment is allocated towards principal and interest each year. In which year will the company pay the most versus the least amount of interest? Explain your answer.

Rounding all calculations to the nearest whole dollar and using the effective interest method, fill in missing spaces (gray blocks) in the partial amortization schedule below. Double-check that your answer to part A matches the cash payments shown in the schedule.

Date	Cash Payment	Interest Expense (CV x market rate x time)	Decrease in Carrying Value	Carrying Value (CV)
1/1/X1				$20,000
12/31/X1	11,834
12/31/X2	11,834
Total	23,668

Accounting Check Does your answer to part C equal the total interest expense per your amortization schedule. If your answer is not yes, please go back and check your work.

Although the cash amounts of the loan payments stay the same, what do you notice about the way the loan payments are apportioned between interest and principal as time goes by? (2 3 sentences)

Using your amortization schedule, prepare the 12/31/X1 journal entry (in proper form) in the general journal below.

Date		Debit	Credit
1/1/X1	Equipment	20,000
	Note Payable		20,000
12/31/X1