Question

Entries for Installment Note Transactions On January 1, 20Y2, Hebron Company issued a $175,000, five-year, 8% installment note to Ventsam Bank. The note requires annual payments of $43,830, beginning on December 31, 20Y2. Journalize the entries to record the following: 20Y2 Jan. 1. Issued the note for cash at its face amount. Dec. 31. Paid the annual payment on the note, which consisted of interest of $14,000 and principal of $29,830. 20Y5 Dec. 31. Paid the annual payment on the note, included $6,253 of interest. The remainder of the payment reduced the principal balance on the note. Issued the note for cash at its face amount. If an amount box does not require an entry, leave it blank. 20Y2 Jan. 1 Paid the annual payment on the note, which consisted of interest of $14,000 and principal of $29,830. If an amount box does not require an entry, leave it blank. 20Y2 Dec. 31 Paid the annual payment on the note, included $6,253 of interest. The remainder of the payment reduced the principal balance on the note. If an amount box does not require an entry, leave it blank. 20Y5 Dec. 31

Answer 1

Hebron is required to make an annual payment of $43,830 over the life of the loan.

In year 1 he made a payment of $43,830. Consisting of $14,000 interest and principal repayment of $29,830

In year 4, his interest repayment was said to be $6,253; this therefore implies that the total repayment agreed between Hebron and the bank is on a reducing balance basis; therefore the principal repayment will be $37,577

The attached document shows the presentation in full.