On January 1, 2017, Eagle borrows $17,000 cash by signing a four-year, 6% installment note. The note requires four equal payments of $4,906, consisting of accrued interest and principal on December 31 of each year from 2017 through 2020. (Round your intermediate calculations and final answers to the nearest dollar amount.)

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Business

Ellen Mercer

17 July, 13:36

On January 1, 2017, Eagle borrows $17,000 cash by signing a four-year, 6% installment note. The note requires four equal payments of $4,906, consisting of accrued interest and principal on December 31 of each year from 2017 through 2020. (Round your intermediate calculations and final answers to the nearest dollar amount.)

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Hutchinson · Answer 1

The question is:

Prepare the journal entries for Eagle to record the loan on January 1 2017 and the four repayments from 31st December 2017 through 31st December 2020?

The answer is:

1 January 2017

Dr Cash 17,000

Cr Note Payable 17,000

31 December 2017

Dr Interest expenses 1,020

Dr Note Payable 3,886

Cr Cash 4,906

(to record note principal and interest expenses payment)

31 December 2018

Dr Interest expenses 787

Dr Note Payable 4,119

Cr Cash 4,906

(to record note principal and interest expenses payment)

31 December 2019

Dr Interest expenses 540

Dr Note Payable 4,366

Cr Cash 4,906

(to record note principal and interest expenses payment)

31 December 2020

Dr Interest expenses 277

Dr Note Payable 4,629

Cr Cash 4,906

(to record note principal and interest expenses payment)

Explanation:

Working note for the repayment transaction:

- For all the four journal entries regarding the repayment, the Cash account is debited at $4,906 because the note requires four equal payments of $4,906.

The calculations of Principal repayment (which is recorded as Dr Note Payable and Interest expenses which is recorded as Dr Interest Expense) for each year are as below:

31 December 2017:

Interest Expenses = Outstanding Note Payable * 6% = 17,000 * 6% = $1,020;

Principal repayment = 4,906 - Interest Expenses = 4,906 - 1,020 = $3,886.

31 December 2018:

Interest Expenses = Outstanding Note Payable * 6% = (17,000-3,886) * 6% = $787;

Principal repayment = 4,906 - Interest Expenses = 4,906 - 787 = $4,119.

31 December 2019:

Interest Expenses = Outstanding Note Payable * 6% = (17,000-3,886-4,119) * 6% = $540;

Principal repayment = 4,906 - Interest Expenses = 4,906 - 540 = $4,366.

31 December 2020:

Interest Expenses = Outstanding Note Payable * 6% = (17,000-3,886-4,119-4,366) * 6% = $277;

Principal repayment = 4,906 - Interest Expenses = 4,906 - 277 = $4,629.