Answer:
<u>Issuance - January 1, 2017</u>
Cash $16,000 (debit)
Note Payable $16,000 (credit)
<u>December 31, 2017</u>
Interest Expense $800 (debit)
Note Payable $3,712.19 (debit)
Cash $4,512.19 (credit)
<u>December 31, 2018</u>
Interest Expense $614.39 (debit)
Note Payable $3,897.80 (debit)
Cash $4,512.19 (credit)
<u>December 31, 2019</u>
Interest Expense $419.50 (debit)
Note Payable $4,092.69 (debit)
Cash $4,512.19 (credit)
<u>December 31, 2020</u>
Interest Expense $214.87 (debit)
Note Payable $4,297.32 (debit)
Cash $4,512.19 (credit)
Explanation:
The Loan Amortization Schedule is most appropriate way to solve all parts of this problem.
The first step to construction of the Amortization Schedule is to determine the payments made annually, PMT (interest and principal).
Using a Financial calculator, this can be determined as ;
Pv = $16,000
r = 5%
n = 4
Fv = $0
p/yr = 1
Pmt = ?
Thus PMT is $4,512.19.
Amortisation Schedule (Extracted from Financial Calculator)
<u>2017</u>
Principle Payment = $3,712.19
Interest Payment = $800
Balance = $12,287.81
Accounting Entries :
Interest Expense $800 (debit)
Note Payable $3,712.19 (debit)
Cash $4,512.19 (credit)
<u>2018</u>
Principle Payment = $3,897.80
Interest Payment = $614.39
Balance = $8,390
Accounting Entries :
Interest Expense $614.39 (debit)
Note Payable $3,897.80 (debit)
Cash $4,512.19 (credit)
<u>2019</u>
Principle Payment = $4,092.69
Interest Payment = $419.50
Balance = $4,297.32
Accounting Entries :
Interest Expense $419.50 (debit)
Note Payable $4,092.69 (debit)
Cash $4,512.19 (credit)
<u>2020</u>
Principle Payment = $4,297.32
Interest Payment = $214.87
Balance = $0
Accounting Entries :
Interest Expense $214.87 (debit)
Note Payable $4,297.32 (debit)
Cash $4,512.19 (credit)
