Tony’s favorite memories of his childhood were the times he spent with his dad a
ID: 2464672 • Letter: T
Question
Tony’s favorite memories of his childhood were the times he spent with his dad at camp. Tony was daydreaming of those days a bit as he and Suzie jogged along a nature trail and came across a wonderful piece of property for sale. He turned to Suzie and said, “I’ve always wanted to start a camp where families could get away and spend some quality time together. If we just had the money, I know this would be the perfect place.” They called several banks and on January 1, 2017, Great Adventures obtained a $570,000, 6%, 9-year installment loan from Summit Bank. Monthly payments of $6,843 are required at the end of each month over the life of the 9-year loan. Each monthly payment of $6,843 includes both interest expense and principal payments (i.e., reduction of the loan amount.)
Late that night Tony exclaimed, “$570,000 for our new camp, this has to be the best news ever.” Suzie snuggled close and said, “There’s something else I need to tell you, Tony, I’m expecting!” They decided right then, if it was a boy, they would name him Venture.
Complete the first three rows of an amortization table.
1/1/2017 - cash paid - interest expense - decrease in carrying value - carrying value
1/31/2017 - cash paid - interest expense - decrease in carrying value - carrying value
2/28/2017 - cash paid - interest expense - decrease in carrying value - carrying value
Record the note payable on January 1, 2017, and the first two payments on January 31, 2017, and February 28, 2017. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
1/1/2017 - record the issuance of note payable
1/31/2017 - record the monthly payment
2/28/2017 - record the monthly payment
Tony’s favorite memories of his childhood were the times he spent with his dad at camp. Tony was daydreaming of those days a bit as he and Suzie jogged along a nature trail and came across a wonderful piece of property for sale. He turned to Suzie and said, “I’ve always wanted to start a camp where families could get away and spend some quality time together. If we just had the money, I know this would be the perfect place.” They called several banks and on January 1, 2017, Great Adventures obtained a $570,000, 6%, 9-year installment loan from Summit Bank. Monthly payments of $6,843 are required at the end of each month over the life of the 9-year loan. Each monthly payment of $6,843 includes both interest expense and principal payments (i.e., reduction of the loan amount.)
Explanation / Answer
The question contains two parts
Part one is to complete the amortisation table
Amortisation table here menas the repayment schedule
Dear student the question clearly specifies that the payment is to be made at the month end for 9 years
Recollecting facts as given in question
Amount of loan
$5,70,000
interest rate : 6%
Monthly instalement : $6843 includes both interest and principal repayment
now repayment schedule
Working note 1: Calcualtion of interest portion
31.01.2017: $570000*6/100=$34200/12 months = $2850
Working note 2: calcualtion of carrying value
31.01.2017: $570000+$2850(interest element as calcualted above)-$6843(monthly repayment as given in question=$566007
Working note 3: calcualtion of interest portion
28.02.2017: $566007(as caluated in working note 2 because now interest will be computed on this balance)
$566007*6/100=$33960.42/12 months=$2830.035
Working note 4:
calculation of carrying value as on 28.02.2017
$566007+$2830.035(interest portion as calculated working note 3)-$6843(monthly repayment)
=$561994.035
TUTORIAL NOTE: AS REPAYMENT BEGIN FROM 31.01.2017 THERE WILL BE NO CASH PAID AS ON 1.01.2017 NAD ALSO NO INTEREST NO INTEREST WILL BE CHARGED ON 1.01.2017
PART 2:JOURNAL ENTRY
DATE 01.01.2017
BANK A/C Dr. $570000
To BANK LOAN A/C Cr. $570000
(BEING BANK LOAN RECEIEVED)
DATE 31.01.2017
BANK LOAN A/C Dr. $3993
INTEREST ON BANK LOAN A/C Dr. $2850
TO BANK A/C Cr.$6843
(BEING BANK LOAN FIRST INSTALMENT PAID)
DATE 28.02.2017
BANK LOAN A/C Dr. $4012.965
INTEREST ON BANK LOAN A/C Dr. $2830.035
TO BANK A/C Cr.$6843
(BEING BANK LOAN SECOND MONTHLY INSTALMENT PAID)
(W.N. 2) 28.02.2017 $6843 $2830.035(W.N.3) $6843-$2830.035=$4012.965 $561994.035
(W.N.4)