FinanceCo lent $8 million to Corbin Construction on January 1, 2021, to construct a playground. Corbin signed a three-year, 6% installment note to be paid in three equal payments at the end of each year.

Required:

1. Prepare the journal entry for FinanceCo’s lending the funds on January 1, 2018.
2. Prepare an amortization schedule for the three-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2018.
4. Prepare the journal entry for the third installment payment on December 31, 2020.

Explanation:

note to be paid with three equal payments @ 6% interest at the end of each year.

Amortization Schedule

YearOpening      Interest 6%    3 equal Paments   Repay         Closing  

1       8000000        480000     2666667         3146667         5333333

2       5333333          320000     2666667         29866672666667

3      2666667           160000     2666667         28266670

Journal Entries

January 1, 2018

Loan Receivable        8000000

           Bank                       8000000

Amount given as Loan

December 31, 2018  

Cash                 3146667      

             Interest Income   480000

             Loan Receivable  2666667

To record the repayment and interest income

December 31, 2020

Cash                 2826667      

             Interest Income   160000

             Loan Receivable  2666667

To record the repayment and interest income

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explanation: