Question

On January 1, 2016, Eagle borrows $26,000 cash by signing a four-year, 8% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2016 through 2019. (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.)

Calculate the amount of the annual payments, and then prepare the journal entries for Eagle to record the loan on January 1, 2016, and the four payments from December 31, 2016, through December 31, 2019.

interest rate, notes payable/ table value = cash paid
   

then record payment of first instillation payment of interest and principle on Dec. 31, 2016. , record payment of second instillation payment of interest and principle Dec 31 2017, record payment of third instillation payment of interest and principle on dec 31 2018, record payment of fourth instillation payment of interest and principle on dec 2019 (make sure balance on notes payment is 0)

Answer 1

Solution:

Calculation of the Amount of the Annual Payments:

Interest Rate	Initial Note Balance		Table Value		Amount of Each Payment
8.0%	$26,000	/	3.31213	=	$7,850

Preparing the Journal Entries for Eagle to Record the Loan on January 1, 2016 and the Four Payments from December 31, 2016 through December 31, 2019:

Date	General Journal	Debit	Credit
Jan 1, 2016	Cash	$26,000
	Notes Payable		$26,000
Dec 31, 2016	Interest Expense	$2,080
	Notes Payable	$5,770
	Cash		$7,850
Dec 31, 2017	Interest Expense	$1,618
	Notes Payable	$6,232
	Cash		$7,850
Dec 31, 2018	Interest Expense	$1,120
	Notes Payable	$6,730
	Cash		$7,850
Dec 31, 2019	Interest Expense	$582
	Notes Payable	$7,268
	Cash		$7,850