Question

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. In payment for the $5.3 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 10%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. Prepare the journal entry for American Food Services' purchase of the machine on January 1, 2018. 2. Prepare an amortization schedule for the four-year term of the installment note. 3. Prepare the journal entry for the first installment payment on December 31, 2018. 4. Prepare the journal entry for the third installment payment on December 31, 2020 Complete this question by entering your answers in the tabs below Req 1 3 and 4 Prepare an amortization schedule for the four-year term of the installment note.

Answer 1

Answer:

equipment    5,300,000

  note payable               5,300,000

-- to record singing of the note--

interest expense 530000 debit

note payable  1,141,995.26 debit

         Cash                                   1,671,995.260 credit

--to record first installment--

interest expense   290,181.00 debit

note payable       1,381,814.26 debit

         Cash                                   1,671,995.260 credit

--to record third installment--

Explanation:

We will calculate the PTM of an annuity of 5,300,000 for 4 years discounted at 10%:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C$

PV  $5,300,000.00

time 4

rate 0.1

$5300000 \div \frac{1-(1+0.1)^{-4} }{0.1} = C$

C   $ 1,671,995.260

Then with the help of the schedule we can do the entries for first and third installment.