On January 1, 2017, Eagle borrows $16,000 cash by signing a four-year, 5% instal
ID: 2575118 • Letter: O
Question
On January 1, 2017, Eagle borrows $16,000 cash by signing a four-year, 5% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2017 through 2020. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations and final answers to the nearest dollar amount. Round all table values to 4 decimal places, and use the rounded table values in calculations.)
Prepare the journal entries for Eagle to record the loan on January 1, 2017, and the four payments from December 31, 2017, through December 31, 2020.
1. Eagle borrows $16,000 cash by signing a four-year, 5% installment note. Record the issuance of the note on January 1, 2017.
2. Record the payment of the first installment payment of interest and principal on December 31, 2017.
3. Record the payment of the second installment payment of interest and principal on December 31, 2018.
4. Record the payment of the third installment payment of interest and principal on December 31, 2019.
5. Record the payment of the fourth installment payment of interest and principal on December 31, 2020.
Explanation / Answer
Note payable = $16000 Interest rate = 5% Number of years = 4 years Equal annual installment = $16000/PVIFA @5% 4 years = $16000/3.546 = $4512 Note repayment schedule Amount at the beginning Equal annual installment Interest @ 5% Principal amount Amount at the end 16,000 4,512 800 3,712 12,288 12,288 4,512 614 3,898 8,390 8,390 4,512 420 4,092 4,298 4,298 4,512 214 4,298 -0 Date Account Head & Description Debit Amount Credit Amount Jan 1, 2017 Cash 16000 5% Note payable 16000 (to record the issue of note payable) Dec 31, 2017 5% Note payable 3712 Interest expenses 800 Cash 4512 (to record the 1st repayment with interest) Dec 31, 2018 5% Note payable 3898 Interest expenses 614 Cash 4512 (to record the 2nd repayment with interest) Dec 31, 2019 5% Note payable 4092 Interest expenses 420 Cash 4512 (to record the 3rd repayment with interest) Dec 31, 2020 5% Note payable 4298 Interest expenses 214 Cash 4512 (to record the 4th repayment with interest)