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31 March, 10:13

On January 1, 2017, Eagle borrows $23,000 cash by signing a four-year, 9% installment note. The note requires four equal payments of $7,099, 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.) Prepare the journal entries for Eagle to record the loan on January 1, 2017, and the four payments from December 31, 2017, through December 31, 2020.

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  1. 31 March, 14:10
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    Dr. Cr.

    January 1, 2017

    Cash $23,000

    Account Payable $23,000

    December 31, 2017

    Account Payable $5,029

    Interest Expense $2,070

    Cash $7,099

    December 31, 2018

    Account Payable $5,482

    Interest Expense $1,617

    Cash $7,099

    December 31, 2019

    Account Payable $5,975

    Interest Expense $1,124

    Cash $7,099

    December 31, 2020

    Account Payable $6,514

    Interest Expense $585

    Cash $7,099

    Explanation:

    Installment of $7,099 is divided in interest and principal payments. As Interest payment is decreasing with the balance due is reducing each year due to principal payment with interest payment after paying interest the loan amount is zero after 4th installment. Loan Amortization schedule shows the amortization of loan and interest payment each year and their balances.

    Loan Amortization schedule

    Date Opening Interest @ 9% Principal Balance

    January 1, 2017 $23,000 $23,000

    Dec 31, 2017 $23,000 $2,070 $5,029 $17,971

    Dec 31, 2018 $17,971 $1,617 $5,482 $12,489

    Dec 31, 2019 $12,489 $1,124 $5,975 $6,514

    Dec 31, 2020 $6,514 $585 $6,514 $0
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Home » Business » On January 1, 2017, Eagle borrows $23,000 cash by signing a four-year, 9% installment note. The note requires four equal payments of $7,099, consisting of accrued interest and principal on December 31 of each year from 2017 through 2020.
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