Question

On January 1, 2014, Ontario Company sold a new machine to Canada Company for $ 70,000. Canada Company made a cash down payment of $ 20,000 and signed a $ 50,000, 8 percent note for the balance due. The note is payable in three equal instalments due on December 31, 2014, 2015, and 2016. Each payment includes principal plus interest on the unpaid balance. Canada Company recorded the purchase as follows:
Jan. 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Required (show computations and round to the nearest dollar):
1. What is the amount of the equal annual payments that Canada Company must make?
2. What is the total interest on the note over the three years?
3. Complete the following debt payment schedule:
4. Prepare the journal entry for each of the three payments.
5. Explain why interest expense decreased in amount each year.


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  • CreatedAugust 04, 2015
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