Question
On January 1, 2019, Information Company purchased an asset with a cash equivalent value of $60,000. The company signed a note with the supplier. Arrangements
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On January 1, 2019, Information Company purchased an asset with a cash equivalent value of $60,000. The company signed a note with the supplier. Arrangements were made with the supplier to pay over a three-year period, with equal annual payments of $24,553 to be made at the end of 2019, 2020, and 2021. Each payment will include principal plus interest on the unpaid balance at 11% per year.
On January 1, 2019, Information Company purchased an asset with a cash equivalent value of $60,000. The company signed a note with the supplier. Arrangements were made with the supplier to pay over a three-year period, with equal annual payments of $24,553 to be made at the end of 2019, 2020, and 2021. Each payment will include principal plus interest on the unpaid balance at 11% per year.
A. Complete the following table:
| Date | Payment | Interest Expense | Reduction in Principal | Unpaid Principal |
| 01/01/19 | NA | NA | NA |
|
| 12/31/19 |
|
|
|
|
| 12/31/20 |
|
|
|
|
| 12/31/21 |
| * |
|
|
| Total |
|
|
| NA |
*Round to reduce principal to zero.
B. Prepare the journal entry for the payment on December 31, 2020.
| Account | Debit | Credit |
|
|
|
|
|
|
|
|
|
|
|
|
C. Explain why the amount of interest expense decreases over time.
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Fundamental Accounting Principles
Authors: John Wild, Ken Shaw, Barbara Chiappetta
22nd edition
9781259566905, 978-0-07-76328, 77862279, 1259566900, 0-07-763289-3, 978-0077862275
