Bian
Inc. financed the purchase of equipment costing $85,000 on January 1, 2011,
using a note payable. The note requires Bian to make annual $32,389 payments of
blended interest and principal on January 1 of the following three years,
beginning January 1, 2012. The note bears interest at the rate of 7%.
Instructions
(a)
Prepare the debt amortization schedule for the note over its term.
(b)
Prepare the journal entry(ies) that are required for the year ended December
31, 2011, and the first installment payment on January 1, 2012.
(c)
Prepare the balance sheet presentation of the note at December 31, 2011
(include both the current and long-term portions).
(d)
Prepare the balance sheet presentation of the note at December 31, 2012.
(e)
Redo part (c) assuming that the equipment was purchased on July 1, 2011, and
the payments are due beginning July 1, 2012.
(a)
|
Date
|
|
Payment
|
Interest
(7%)
|
Principal
repayment
|
|
Carrying
Amount
of Note |
|
1/1/11
|
|
|
|
|
|
$85,000
|
|
1/1/12
|
|
$32,389
|
$5,950
|
$26,439
|
|
58,561
|
|
1/1/13
|
|
$32,389
|
$4,099
|
$28,290
|
|
30,271
|
|
1/1/14
|
|
$32,389
|
$2,119
|
$30,271*
|
|
0
|
* rounding of
$1
(b)
|
1/1/11
|
Machinery.................................................................................
|
85,000
|
|
|
|
Notes
Payable..............................................................
|
|
85,000
|
|
12/31/11
|
Interest Expense......................................................................
|
5,950
|
|
|
|
Interest
Payable...............................................................
|
|
5,950
|
|
|
|
|
|
|
1/1/12
|
Interest Payable.......................................................................
|
5,950
|
|
|
|
Note Payable............................................................................
|
26,439
|
|
|
|
Cash..................................................................................
|
|
32,389
|
(c)
|
Bian Inc.
|
|||
|
Balance
Sheet (partial)
|
|||
|
December
31, 2011
|
|||
|
Current Liabilities:
|
|
|
|
|
|
Interest Payable
|
$5,950
|
|
|
|
Current portion of long-term note
payable
|
26,439
|
$32,389
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
Note Payable
|
$85,000
|
|
|
|
Less: current portion
|
(26,439)
|
$58,561
|
(d)
|
Bian Inc.
|
|||
|
Balance
Sheet (partial)
|
|||
|
December
31, 2012
|
|||
|
Current Liabilities:
|
|
|
|
|
|
Interest Payable
|
$4,099
|
|
|
|
Current portion of long-term note
payable
|
28,290
|
$32,389
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
Note Payable
|
$58,561
|
|
|
|
Less: current portion
|
(28,290)
|
$30,271
|
(e)
|
Bian Inc.
|
|||
|
Balance
Sheet (partial)
|
|||
|
December
31, 2011
|
|||
|
Current Liabilities:
|
|
|
|
|
|
Interest Payable*
|
$2,975
|
|
|
|
Current portion of long-term note
payable
|
26,439
|
$29,414
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
Note Payable
|
$85,000
|
|
|
|
Less: current portion
|
(26,439)
|
$58,561
|
*$5,950 X
6/12 = $2,975
