Question

# On January 1, Year 1, Company borrowed \$543,255 on a 6-year, 5.5% installment note payable. The...

On January 1, Year 1, Company borrowed \$543,255 on a 6-year, 5.5% installment note payable. The terms of the note require Company to pay 6 equal payments each December 31 for 6 years.

The Notes Payable balance at the end of December 31 Year 4 is:

The Cash balance at the end of December 31 Year 3 is:

Solution:

Annual installment on note = \$543,255 / Cumulative PV factor at 5.5% for 6 periods

= \$543,255 / 4.99553

= \$108,748

 Note Amortization Schedule Date Cash paid Interest expense Decrease in carryin value Carrying value Jan 1, Year 1 \$543,255 Dec 31, Year 1 \$108,748 \$29,879 \$78,869 \$464,386 Dec 31, Year 2 \$108,748 \$25,541 \$83,207 \$381,179 Dec 31, Year 3 \$108,748 \$20,965 \$87,783 \$293,396 Dec 31, Year 4 \$108,748 \$16,137 \$92,611 \$200,785 Dec 31, Year 5 \$108,748 \$11,043 \$97,705 \$103,080 Dec 31, Year 6 \$108,748 \$5,668 \$103,080 \$0

The Notes Payable balance at the end of December 31 Year 4 is = \$200,785

The Cash balance at the end of December 31 Year 3 is = \$543,255 - (\$108,748*3) = \$217,011