Question 41. (30 points)

On January 1, 2022, Newberry Trading Company borrowed $25,000 from Bank to expand its operations. The terms of the loan provide for repayment of the loan in three equal annual payments (in arrears) using the Effective-Interest method, with interest at 5%/year. (Hint: See chapter 13, Section 13.2.)

Part A: (15 points)

Calculate the payment necessary to amortize the loan, and prepare an amortization schedule showing the Beginning Balance, Interest Paid, Principal Paid, and Ending Balance for the loan for the three years. (Bigger Hint: Feel free to use the Amortization Schedule Examples in your coursework for Unit 14.)

Part B: (15 points)

Assume that it is December 31, 2022 and that Newberry Trading Company has just made the first year payment. Prepare the journal entry (in perfect form) to record the payment on that date. (You may assume that the loan payable (and the cash received) was already correctly recorded on the books on January 1, 2022.)