Problem 14-3 Good-Deal Inc. developed a new sales gimmick to help sell its inven
ID: 2470725 • Letter: P
Question
Problem 14-3 Good-Deal Inc. developed a new sales gimmick to help sell its inventory of new automobiles. Because many new car buyers need financing, Good-Deal offered a low downpayment and low car payments for the first year after purchase. It believes that this promotion will bring in some new buyers. On January 1, 2014, a customer purchased a new $34,960 automobile, making a downpayment of $1,280. The customer signed a note indicating that the annual rate of interest would be 12% and that quarterly payments would be made over 3 years. For the first year, Good-Deal required a $421 quarterly payment to be made on April 1, July 1, October 1, and January 1, 2015. After this one-year period, the customer was required to make regular quarterly payments that would pay off the loan as of January 1, 2017.
(a) Prepare a note amortization schedule for the first year.
(b) Indicate the amount the customer owes on the contract at the end of the first year. (Round answer to 0 decimal places, e.g. 38,548.)
(c) Compute the amount of the new quarterly payments. (Round answer to 0 decimal places, e.g. 38,548.)
(d) Prepare a note amortization schedule for these new payments for the next 3 years. (Round answers to 0 decimal places, e.g. 38,548.)
Explanation / Answer
(a) Above is the 1st year Amortization schedule
(b) Customers owes after 1st year contract = $37230
(c) New Quarterly installment amount for $37230 payable in 2 years with 8 payment @ 12% = %5304
Quarterly installment formula = P x r x (1 + r)n/((1 + r)n - 1) where P= Loan amount, r= interest rate, n=tenure in number of months.
(d) Quarterly schedule for balance period as follows:-
Dates OpeningBalance Down Payment
& Installment Balance
before Intt. Qtrly Interest
@ 12% closing
Balance 1-Jan-14 (34,960) 1,280 (33,680) (1,010) (34,690) 1-Apr-14 (34,690) 421 (34,269) (1,028) (35,297) 1-Jul-14 (35,297) 421 (34,876) (1,046) (35,923) 1-Oct-14 (35,923) 421 (35,502) (1,065) (36,567) 1-Jan-15 (36,567) 421 (36,146) (1,084) (37,230)