Answer:
Issuance - January 1, 2017
Cash $16,000 (debit)
Note Payable $16,000 (credit)
December 31, 2017
Interest Expense $800 (debit)
Note Payable $3,712.19 (debit)
Cash $4,512.19 (credit)
December 31, 2018
Interest Expense $614.39 (debit)
Note Payable $3,897.80 (debit)
Cash $4,512.19 (credit)
December 31, 2019
Interest Expense $419.50 (debit)
Note Payable $4,092.69 (debit)
Cash $4,512.19 (credit)
December 31, 2020
Interest Expense $214.87 (debit)
Note Payable $4,297.32 (debit)
Cash $4,512.19 (credit)
Step-by-step explanation:
The Loan Amortization Schedule is most appropriate way to solve all parts of this problem.
The first step to construction of the Amortization Schedule is to determine the payments made annually, PMT (interest and principal).
Using a Financial calculator, this can be determined as ;
Pv = $16,000
r = 5%
n = 4
Fv = $0
p/yr = 1
Pmt = ?
Thus PMT is $4,512.19.
Amortisation Schedule (Extracted from Financial Calculator)
2017
Principle Payment = $3,712.19
Interest Payment = $800
Balance = $12,287.81
Accounting Entries :
Interest Expense $800 (debit)
Note Payable $3,712.19 (debit)
Cash $4,512.19 (credit)
2018
Principle Payment = $3,897.80
Interest Payment = $614.39
Balance = $8,390
Accounting Entries :
Interest Expense $614.39 (debit)
Note Payable $3,897.80 (debit)
Cash $4,512.19 (credit)
2019
Principle Payment = $4,092.69
Interest Payment = $419.50
Balance = $4,297.32
Accounting Entries :
Interest Expense $419.50 (debit)
Note Payable $4,092.69 (debit)
Cash $4,512.19 (credit)
2020
Principle Payment = $4,297.32
Interest Payment = $214.87
Balance = $0
Accounting Entries :
Interest Expense $214.87 (debit)
Note Payable $4,297.32 (debit)
Cash $4,512.19 (credit)