EXAMPLE 14.2 Note Payable: Term Loan PROBLEM: Salada Corporation borrowed $500,000 by issuing a term loan on February 20 The note agreement specifies that the company will pay interest every three months (April July 31, October 31, and January 31) at 10%, and the principal will be due on January 31,20 nal entries will Salada make on February 1, 2014, at the end of each calendar quarter, a Salada has a December 31 year end and prepares quarterly financial statements. What interest payment, and on January 31, 2019? SOLUTION: Salada records the long-term note on the date of issuance as follows: Account Cash February 1, 2014 500,000 Long-Term Notes Payable 500,000 $12,500 per quarter ($500,000 x 10%/4 quarters). Monthly interest is one-third this amoun Salada accrues interest expense at the end of each calendar quarter. Quarterly interes or $4,167. Thus, on March 31, June 30, September 30, and December 31, Salada will accrue to months of interest. March 31, 2014 (and Every Quarter through December 31, 2018) 8.333 Account Interest Expense Interest Payable 8,333 At each interest payment date, Salada will record the cash payment of $12,500, remove the interest payable of $8,333 because the company no longer owes that interest, and record on month of interest expense. April 30, 2014 (and Every Three-month Payment through January 31, 2019) Account Interest Expense Interest Payable Cash 4,167 8.333 12.500 At maturity, Salada pays the note principal and removes it from the balance sheet Account January 31, 2019 Long-Term Notes Payable 500.000 Cash 500,000 Long-Term Notes Payable: Installment Loans est. While the payment is the same each period, the amount applied to principal and interests An installment loan requires a fixed payment each period that includes both principal and in Installment notes are used in auto loans and home mortgages. Computing the required payment involves using the time value of money techniques from Chapter 7 by first computing the payment and then preparing an amortization table to assi