Little Company borrowed $45,000 from Sockets on January 1, 2016, and signed a th
ID: 2424907 • Letter: L
Question
Little Company borrowed $45,000 from Sockets on January 1, 2016, and signed a three-year, 6% installment note to be paid in three equal payments at the end of each year. The present value of an ordinary annuity of $1 for 3 periods at 5% is 2.72325. (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 on January 1, 2016, for Sockets’ lending the funds.
prepare an amortization schedule for the three-year term of the installment note.
record the scokets payment received on 12//31/18
Record the sockets payment received on December 31, 2018.
Explanation / Answer
1 Formula for loan amortization = A= [i*P*(1+i)^n]/[(1+i)^n-1] Amt $ A = periodical installment ? per month P=Loan amount = 45,000 i= interest rate per period = 6.00 % per year n=total no of payments 3 A=[0.06 *45000*1.06^3]/(1.06^3-1) P= 16834.94 So Installment amount is $ 16,834.94 Amortization schedule Year Installment amt $ Interest Principal repaid Balance principal Dec 31. 2016 $ 16,834.94 2,700 14,135 30,865 Dec 31. 2017 $ 16,834.94 1,852 14,983 15,882 Dec 31. 2018 $ 16,834.94 953 15,882 0 Journal entry in Socket's Book Date Account Title Dr $ Cr $ Jan 1.2016. Installemnt Note Receivable 45,000.00 Cash 45,000.00 Dec 31.2016. Cash 16,834.94 Installemnt Note Receivable 14,134.94 Interest Revenue 2,700.00 Dec 31.2018. Cash 16,834.94 Installemnt Note Receivable 15,882.02 Interest Revenue 952.92