Question

On January 1, Year 1 Hatcher Co. borrowed $150,000 cash by signing a 10% installment note that is to be repaid with 3 annual year-end payments of $60,316, the first of which is due on December 31, Year 1.

(a) Prepare the company's journal entry to record the note's issuance.

Date Account Name Debit Credit

(b) Prepare the journal entries to record the first and second installment payments. Hint: You will need to calculate interest expense and reduction to note payable for each 12 month period using the effective interest method. Show your work! The amount of the cash payment was given to you above in part (a).

Date Account Name Debit Credit

Answer 1

Installment Note Amortisation Table
	Year -end	Tow. Int.	Tow. Prin.	Prin. Bal.
				150000
1	60316	15000	45316	104684
2	60316	10468	49848	54836
3	60316	5484	54832	4
	180948	30952	149996

	Date	Account Name	Debit	Credit
a.	1-Jan	Cash	150000
		10% Installment Note		150000
b.	Year 1
	Dec.31	Interest expense	15000
		10% Installment Note	45316
		Cash		60316
	Year 2
	Dec.31	Interest expense	10468
		10% Installment Note	49848
		Cash		60316
	Year 3
	Dec.31	Interest expense	5484
		10% Installment Note	54832
		Cash		60316