ACCT 1A Lecture Notes - Lecture 22: Underwriting, Cash Flow, Interest Expense

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magentamuskrat366

9 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

urell

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Document Summary

Blended payments: portions of the principal are payable annually along with interest on the debt, or that equal payments covering both principal and interest will be made periodically until the principal is fully paid at maturity. Ex: we assume on january 1, 2017, a company borrows 100,000 from the bank, to be repaid over a period of five years, plus interest at the rate of 6 percent per year. 1) payment of the principal on december 31, 2012, with interest payable annually on december 31. Company pays largest amount of interest under option 1 because the principal is not repaid until the end of year 5 payable annually on that date. 2) payment of one-fifth of the principal annually on december 31, with interest. 3) payment of five equal annual amounts that include both principal and interest. Under options 2 and 3, interest expense decreases over time because part of each december 31 the principal is paid every year.

Related Questions

On January 1, 2016, Denver Company borrowed $25,000 by issuing a 5-year note to Capital Bank. The note had a 10% annual rate of interest. The loan agreement called for five equal payments of $6,595 on December 31 of each year 2016 through 2020. What is the correct journal entry to record the loan payment on December 31, 2016?

	Debit	Credit
Interest Expense	6,595
Cash		6,595

	Debit	Credit
Installment Note Payable	6,595
Cash		6,595

	Debit	Credit
Interest Expense	2,500
Installment Note Payable	4,095
Cash		6,595

	Debit	Credit
Interest Expense	2,500
Cash	4,095
Installment Note Payable		6,595

burgundywalrus623

(5 points) On August 1, 2014 Y borrowed $1,000,000 at 3%. Y pays interest every 6 months with interest payments every February 1 and August 1. Y will repay $400,000 of the principal on August 1, 2015 and the remainder on February 1, 2016. Assume Y only makes AJEs every December 31 AND does NOT make reversing entries. Prepare the entries Y should make on:

August 1, 2014

December 31, 2014

February 1, 2015

August 1, 2015

December 31, 2015

February 1, 2016

(0.5 point each) Prepare the AJEs that should be made on 09-30-13, the end of the accounting year, for each of the following situations. If no AJE is required, indicate ânone.â Assume the firm only makes AJEs at the end of the accounting year.

On July 1, 2013, the firm collected $18,000 of rent for 12 months in advance. The journal entry to record the receipt included a credit to an income statement account.

On February 1, 2013, the company borrowed $120,000 at 4%. The principle is due on February 1, 2017. The interest is due every six months and the first interest payment took place on August 1, 2013.

On June 1, 2011, the company borrowed $2,500,000 for five years at 3%. Interest is due and payable every quarter and the first interest payment took place on September 1, 2011. The principle is payable in five equal installments and the first principle payment took place on June 1, 2012.

On February 1, 2013 the firm paid $1,600 for an 8-month equipment rental. The journal entry to record the payment included a debit to a real account.

blushfox941

On November 1, 2015, Norwood borrows $460,000 cash from a bankby signing a five-year installment note bearing 9% interest. Thenote requires equal total payments each year on October 31. (TableB.1, Table B.2, Table B.3, and Table B.4) (Use appropriatefactor(s) from the tables provided.)

Required:
1.	Complete the below table to calculate the total amount of eachinstallment payment.

Initial Cash Proceeds		PV Factor		Amount of annual payment
			=

2. Complete an amortization table for thisinstallment note. (Round your intermediate calculations tothe nearest dollar amount.)

Period Ending Date	Beginning Balance	Debit Interest Expense	+ Debit Notes Payable	= Credit Cash	Ending Balance
10/31/2016
10/31/2017
10/31/2018
10/31/2019
10/31/2020
Total

3.	Prepare thejournal entries in which Norwood records the following:

(a)	Accrued interest as of December 31, 2015 (the end of its annualreporting period).

(b) The first annual payment on the note.

greenfish444

ACCT 1A Lecture Notes - Lecture 22: Underwriting, Cash Flow, Interest Expense

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