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3. Smith Inc. purchased a piece of equipment for $850,000 on March 1, 2019 paying $80,000...

3. Smith Inc. purchased a piece of equipment for $850,000 on March 1, 2019 paying $80,000 in down payment and signing a note for the rest of the amount. Smith has agreed to make twenty equal quarterly payments for five years beginning June 1, 2019. The interest rate on this loan is 10%. What is the carrying value of the note on June 1, 2021 after the payment on that day has been made?

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Answer #1
Face value of the note=Value of the equipment-Down payment=850000-80000=$ 770000
Equal quarterly payment=face value of the note/discount factor at 10% for 20 years=770000/8.513564=$ 90444
Carrying value of the note on June 1=face value of the note-Principal payment towards note
Principal payment towards note=Equal quarterly payment-interest expense from Mar 1 to June 1
Interest expense from mar 1 to june 1 (3 months)=face value of the note*interest rate*3/12=770000*10%*(3/12)=$ 19250
Principal payment towards note=90444-19250=$ 71194
Carrying value of the note on June 1=770000-71194=$ 698806
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