Question

On November 1, 2017, Norwood borrows $480,000 cash from a bank by signing a five-year installment note bearing 5% interest. The note requires equal payments of $110,867 each year on October 31. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)

Required:

1. Complete an amortization table for this installment note.
2. Prepare the journal entries in which Norwood records the following:
(a) Accrued interest as of December 31, 2017 (the end of its annual reporting period).
(b) The first annual payment on the note.

Answer 1

Period ending date	Beginning balance	Debit Interest expense	Debit Notes payable	Credit Cash	Ending balance
10/31/2018	480000	24000	86867	110867	393133
10/31/2019	393133	19657	91210	110867	301923
10/31/2020	301923	15096	95771	110867	206152
10/31/2021	206152	10308	100559	110867	105593
10/31/2022	105593	5274	105593	110867	0
Total		74335	480000	554335
2
		Debit	Credit
Dec 31,2017	Interest expense	4000		=480000*5%*2/12
	Interest payable		4000
Oct 31,2018	Interest expense	20000		=480000*5%*10/12
	Interest payable	4000
	Notes payable	86867
	Cash		110867