ABC accepts a $400,000, 9% note from DEF on July 1, 2016, and lends cash to DEF. This note matures on June 30, 2018, and requires annual installment payments each June 30 until maturity. The market rate of interest on the date of issue was 9%. Complete the amortization table for this note receivable, then complete all necessary journal entries for 2016, 2017, and 2018. ABC is a
calendar-year company that files financial statements annually.
What will be an ideal response?
Answer:
Amortization Table:
Effective Principal Payment Note
Date Interest Reduction Received Balance
7/1/16 $400,000
6/30/17 $36,000 $191,388 $227,388* 208,612
6/30/18 18,776 208,612 227,388 0
*Payment calculated using Excel function with the following inputs:
N = 2, I/Y = 9%, PV = $400,000; Excel Function: = PMT(.09,2,400000)
Journal Entries:
7/1/16 Notes Receivable 400,000
Cash 400,000
12/31/16 Interest Receivable 18,000
Interest Revenue 18,000
($400,000 × .09 × 6/12)
6/30/17 Cash 227,388
Notes Receivable 191,388
Interest Receivable 18,000
Interest Revenue 18,000
12/31/17 Interest Receivable 9,388
Interest Revenue 9,388
($208,612 × .09 × 6/12)
6/30/18 Cash 227,388
Notes Receivable 208,612
Interest Receivable 9,388
Interest Revenue 9,388
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