Question

Zetix borrowed $20,000 on a one-year, 10 percent note payable from the local bank on March 1. Interest was paid quarterly, and the note was repaid one year from the time the money was borrowed.

Requirements
Calculate the amount of cash payments Zetix was required to make in each of the two calendar years that were affected by the note payable assuming accounting period ends on Dec. 31 each year.

Part II

Topic: Liabilities and Payroll
Total Marks=2.5
3
Glen Pool Club, Inc., has a $300,000 mortgage liability. The mortgage is payable in monthly installments of $3000, which include interest computed at an annual rate of 12 percent.
Requirements
Prepare a partial amortization table showing (1) the original balance of this loan, and (2) the allocation of the first two monthly payments between interest expense and the reduction in the mortgage’s unpaid balance. (Round to the nearest dollar.)

Answer 1

Answer -1

Answer -2

In this mortgage liability the interest expense amounts to $300,000 * 12%/12 = $3,000 p.m. the installment paid is $3,000 therefore the installment paid only covers the interest payment and nothing has been reduced from the mortgage liability.
In case of reduction of mortgage liability we need to increase the amount of the installment i.e the amount of installment paid should be higher than the interest accrued from the liability.

In that case only the liability will go on decrease along with the interest.

Here in this case the amount of interest and amount of installment is same thus installment covers only the interest portion.

Therefore the original balance of the loan will be $300,000 and the payment of first two installment will be directly attributable to interest only and there will be no reduction in the liability as nothing has been contributed towards it.