accounting practice exercise

ACCT201 Spring 2013

Name:

Practice Exercise 3

Chapter 10

1. On October 31, 2011 Ronald signed a 2-year installment note in the amount of $50,000
in conjunction with the purchase of equipment. This note is payable in equal monthly
installments of $2,354, which include interest computed at an annual rate of 12%. The
first monthly payment is made on November 30, 2011. This note is fully amortizing over
24 months.
Complete the amortization table for the first two payments by entering the correct dollar
amounts in the blank spaces provided. In addition, answer the questions that follow.

(a) What is Ronald’s 2011 income statement interest expense?

(b) What is Ronald’s 2011 total liability for this note payable on the balance sheet?

(c) How much TOTAL cash payments will Ronald make over the 2-year life of the note
payable?

(d) How much TOTAL interest will Ronald pay over the 2-year life of the note payable?

ACCT 201 Spring 2013
Name:

2. On March 1, 2011, five-year bonds are sold for $508,026 that have a face value of
$500,000 and an interest rate of 10%. Interest is paid semi-annually on March 1 and
September 1. Using the straight-line amortization method, prepare the borrower’s journal
entries on: March 1, 2011; September 1, 2011; December 31, 2011; and March 1, 2012.