Question

on january 1 year 1 kase borrowed 476,259 on a 5 year 7.3% installment note payable....

on january 1 year 1 kase borrowed 476,259 on a 5 year 7.3% installment note payable. the terms of the note require kase to pay 5 equal payments each december 31 for 5 years.

1.the notes payable balance at the end of december 31 year 3 is

a. 124,990

b.210,823

c.242,080

d.109,124

2. the cumulative interest expense through the end of July 31 year 3 is

a. 22,309

b.101,223

c.63,524

d.85,833

3.the cash balance at the end of December 31 year 2 is

a. 210,823

b.124,990

c.242,080

d.109,124

Homework Answers

Answer #1

Solution 1:

Annual installment = $476,259 / Cumulative PV factor at 7.3% for 5 periods

= $476,259 / 4.06747 = $117,089.73

Note Amortization Schedule
Date Cash paid Interest expense Decrease in carryin value Carrying value
Jan 1 , Year 1 $476,259
Dec 31, Year 1 $117,090 $34,767 $82,323 $393,936
Dec 31, Year 2 $117,090 $28,757 $88,332 $305,604
Dec 31, Year 3 $117,090 $22,309 $94,781 $210,823
Dec 31, Year 4 $117,090 $15,390 $101,700 $109,123
Dec 31, Year 5 $117,090 $7,966 $109,124 $0

notes payable balance at the end of december 31 year 3 is = $210,823

Hence option b is correct.

Solution 2:

cumulative interest expense through the end of July 31 year 3 = $34,767 + $28,757 = $63,524

Hence option c is correct.

Solution 3:

Cash balance at Dec 31, year 2 = Proceed from note - Total payments

= $476,259 - ($117,089.73*2) = $242,080

Hence 3rd option is correct.

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