Question

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:

Answer 1

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