Question

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

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.