Payments Installment Notes (Notes Payable) are Promissory Notes that requires Issuer to make principal and interest payments over several periods. . These differ from bonds because the issuer makes equal payments each period and pays back the note over time. Equal payments are comprised of different amounts of Principal & Interest Every Period Corrmon examples are Car loans, Mortgages (A) (B) (C) (D) Debit Period Ending Debit Interest Expense Beginning Balance (Prior (E)] Credit Notes Payable Ending Balance (A)- (C)] Date Cash (%(A) [(D)-(B) At issuance, the borrower records the receipt of cash and the note pevable for the full amount borrowed. Each period, the issuer then records a cash payment (this is always the same) and allocates a portion of the payment to interest and the rest to principal. [computed] 12/31/19 Example Problem: On January 1, 2019, MM Co. borrows $340,000 cash from a bank and in retum signs an 8% installment note for five equal annual payments, with the first payment due one year after the note is signed. 1. Prepare the journal entry to record issuance of the note. 12/31/20 Cash 340000 12/31/21 Note Payable 340000 12/31/22 12/31/23 2. Compute the amount of each of the five equal tatal payments 2. Record the payment entries for the first year and the last year. How to calculate the Payment: CASH Payment = Principal (Present Value PVoa Factor 12/31/19 Poa: Appendix B.3 n=# of periods i= market interest rate n=5 12/31/23 - ON YOUR OWN I=B4% 3.9927 PMT 240000/2.9927=85,155 cash paid aer year