Question

Exercise 10-11 Installment note entries LO C1 On January 1, 2018, Eagle borrows $20,000 cash by signing a four-year, 7% installment note. The note requires four equal payments of $5,905, consisting of accrued interest and principal on December 31 of each year from 2018 through 2021. (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, 2018, and the four payments from December 31, 2018, through December 31, 2021.

• 1

  Eagle borrows $20,000 cash by signing a four-year, 7% installment note. Record the issuance of the note on January 1, 2018.

• 2

  Record the payment of the first installment payment of interest and principal on December 31, 2018.

• 3

  Record the payment of the second installment payment of interest and principal on December 31, 2019.

• 4

  Record the payment of the third installment payment of interest and principal on December 31, 2020.

• 5

  Record the payment of the fourth installment payment of interest and principal on December 31, 2021.

Answer 1

General Journal   

No	Date	Account Title and Explanation	Debit	Credit
1	Jan.01.2018	Cash	$20,000
		Note Payable		$20,000
2	Dec.31.2018	Interest Expense	$1,400
		NotePayable	$4,505
		Cash		$5,905
3	Dec.31.2019	Interest Expense	$1,085
		Note Payable	$4,820
		Cash		$5,905
4	Dec.31.2021	Interest Expense	$747
		NotePayable	$5,158
		Cash		$5,905
5	Dec.31.2022	Interest Expense	$388
		Note Payable	$5,517
		Cash		$5,905

Explanation;

Payments

Period	A	B	C	D	E
Ending Date	Beginning Balance	Debit Interest Expense	Debit Note Payable	Credit Cash	Ending Balance
2018	$20,000	$1,400	$4,505	$5,905	$15,495
2019	$15,495	$1,085	$4,820	$5,905	$10,675
2020	$10,675	$747	$5,158	$5,905	$5,517
2021	$5,517	$388*	$5,517	$5905
Total		$3,620	$20,000	$23,620

* Adjusted For Rounding