Question

11- On January 1, 2018, Clark Co. borrowed cash from the bank by receiving a $100,000 3-yr loan that carried interest rate. The note is to be repaid by making annual cash payments of $38,105 which includes both principal and intrrest. The payments are to be made on December 31 of each year.

a) Prepare an amortization schedule for the term of the lone.

Date	Balance beginning of Period	Cash	Applied to Interest	Applied to Principal	Balance of Period
2018
2019
2020

b) What amount of interest expense will be showen on the 2018 incom statement?

c) What will be the balance of the note payable (principal) due at the beginning of the period for December 31, 2020 (right before the final payment is made)?

12- Bond Premium and Discount: READ CAREFULLY

a) William, Inc. issued $500,000 of 10 years, 4% bonds at 102.
The cash proceed from the bond issue are ___________________.

b) Dean, Inc. issued $350,000 of 6 years, 5% bonds at 97.
The cash proceeds from the bond issue are ________________.

c) Daniel, Inc. issued $125,000 of 20 year, 6% bonds at 98.
The amount of the bond premium is _________________.

d) Steel, Inc. issued $800,000 of 5 years, 7% bonds at 101.
The amount of the bond premium is ___________________.

Answer 1

Answer to question no 11

A.

Date	Balance beginning of Period	Cash	Applied to Interest	Applied to Principle	Balance of Period
2018	100000	38105	7000	31105	68995
2019	68995	38105	4822	33283	35612
2020	35612	38105	2493	35612	0

B.$7000 will be shown as interest expenses on 2018 Income statement

C.$35612 is principle due at the beginning of peiod for December 31, 2020

Reference note:

Computation of Implicit interest rate

1. Let us assume interest rate=x

2. Present of value of loan = present value of future repayment

1,00,000= 38105/(1+x)+38105/(1+x)²+38105/(1+x)³

If we simplify the above equation, we will get x=7%

Answer to question 12:

Does not have subject knowledge