Question

Installment note; amortization schedule [LO14-3]

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. In payment for the $5.3 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 10%.
Required:
1. Prepare the journal entry for American Food Services' purchase of the machine on January 1, 2018.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2018.
4. Prepare the journal entry for the third installment payment on December 31, 2020.
5. Prepare an amortization schedule for the four-year term of the installment note.

Answer 1

Annuity to be paid:

5,300,000 = Annuity * Present value interest factor of annuity, 10%, 4 years

5,300,000 = Annuity * 3.16986

Annuity = 5,300,000 / 3.16986

= $1,671,995.4950

= $1,671,995

1.

Date Account Title Debit Credit

Jan 1 , 2021 Right of Use Asset $5,300,000

Lease Payable $5,300,000

3.

Date Account Title Debit Credit

Dec 31 , 2021 Interest expense $530,000

Lease Payable $1,141,995

Cash $1,671,995

4.

Date Account Title Debit Credit

Dec 31 , 2023 Interest expense $290,181

Lease Payable $1,381,814

Cash $1,671,995

Question 2 is attached.