On December 31. 2000, Kay Architectural Services purchased equipment at a cost of $20,215 paying $55,000 cash and issuing a two-year installment note payable for $15,215. This note calls for semiannual installments of $4,800, which include interest computed at the annual rate of 20% per year (10 % semiannual period). Payments are due on June 30 and December 31. The first pay-is due June 30, 2001, and the note will be fully amortized at December 31. 2002. Kay can repeat this note at any interest payment date by paying the unpaid balance plus any accrued interest.
Instructions
a. Prepare an amortization table showing the allocation of each of the four semiannual payments between interest expense and reductions in the principal amount of the note.
b. Prepare journal entries to record the issuance of this note and each of the four semiannual payments in 2001 and 2002.
c. Assume that on December 31, 2061, Kay decided to pay the entire unpaid balance of this note. Prepare a journal entry to record the early retirement of this note. (Assume that the semiannual payment due on this date already has been paid.)
d. Illustrate the presentation of this note in the company's balance sheet at December 31, 2000. (Show separately the current and long-term portions of this debt.)