Question

*P10-13B Ronald Allerton has just approached a venture capitalist for financing for a new business venture, the development of a local ski hill. On July 1, 2016, Ronald was loaned $140,000 at an annual interest rate of 8%. The loan is repayable over 5 years in annual installments of $35,064, principal and interest, due each June 30. The first payment is due June 30, 2017. Ronald uses the effective-interest method for amortizing debt. The ski hill company’s year-end will be June 30.

Instructions

(a) Prepare an amortization schedule for the 5 years, 2016–2021. (Round all calculations to the nearest dollar.)

(b) Prepare all journal entries for Ronald Allerton for the first 2 fiscal years ended June 30, 2017, and June 30, 2016. (Round all calculations to the nearest dollar.)

(c) Show the balance sheet presentation of the note payable as of June 30, 2018. (Hint: Be sure to distinguish between the current and long-term portions of the note.)

Answer 1

Year	Installment Amount	Interest	Principal	Balance
2016				140000
2017	35064	11200	23864	116136
2018	35064	9291	25773	90363
2020	35064	7229	27835	62528
2021	35064	5002	30062	32466
2022	35064	2597	32467	0
Date	General Journal	Debit	Credit
July, 1 2016	Cash	140000
	Note Payable		140000
	(To record loan receipt)
30-Jun-17	Interest expense	11200
	Note Payable	23864
	Cash		35064
	(To record first payment)
30-Jun-18	Interest expense	9291
	Note Payable	25773
	Cash		35064
	(To record first payment)
	Balance - Sheet
	Current Liabilities:
	Note Payable	27835
	No Current Liabilities
	Note Payable	62528