ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 10
Reporting & Analyzing Long-Term Liabilities
Dr. Fred Barbee

Solution to Short-Problem #3

Short Problem #3

A company purchased two new trucks for a total of $250,000 on January 1, 2002. The company paid $40,000 cash and gave a $210,000, 3-year, 8% note for the remaining balance. The note is to be paid in three annual end-of-year payments beginning December 31, 2002. Assume the annual installment payments are to consist of equal amounts of principal plus accrued interest. Prepare a not amortization table using the format below:

Note Amortization Table


Date
Beginning
Balance
 Debit:
Interest
Expense
 Debit
Notes
Payable
Credit
Cash
Ending
Balance
12/31/02  
  
  
  
  
12/31/03  
  
  
  
  
12/31/04  
  
  
  
  

Solution

Note Amortization Table
Date
Beginning
Balance
Debit:
Interest
Expense
Debit
Notes
Payable

Credit
Cash

Ending
Balance
12/31/02
$210,000
$16,800
$70,000
$86,800
$140,000
12/31/03
140,000
11,200
70,000
81,200
70,000
12/31/04
70,000
5,600
70,000
75,600
-0-

Supporting Calculations
12/31/02: Interest Expense: $210,000 x 8% = $16,800
12/31/03: Interest Expense = $140,000 x 8% = $11,200
12/31/04: Interest Expense = $70,000 x 8% = $5,600