On February 1, Willmar Corporation borrowed $100,000 from its bank by signing a 12 percent, 15-year...

On February 1, Willmar Corporation borrowed $100,000 from its bank by signing a 12 percent, 15-year note payable. The note calls for 180 monthly payments of $1,220. Each payment includes an interest and a principal component.

a. Compute the interest expense in February.

b. Compute the portion of Willmar’s March 31 payment that will be applied to the principal of the note. (Round your intermediate calculations and final answer to the nearest dollar amount.)

c. Compute the carrying value of the note on April 30. (Round your intermediate calculations and final answer to the nearest dollar amount.)

Solutions

Expert Solution

Referring to amortization schedule :

a) Interest expense in february			$ 1,017.00
b)Principal payment on mar.31			$ 206.00
c) Carrying value on Apr.30			$ 101,035.00


Workings :
To construct amortization table, note's present value shall be calculated :

Monthly interest rate	RATE		1%	(12%/12months)
Number of monthly payments	NPER		180
Monthly installment payment	PMT		$1,220
Balance in loan account at end	FV		0
Monthly compounding type	TYPE		0	if compounded at the end of each month

Present value of note payable =			$101,652

Present value of note payable is calculated using the EXCEL FUNCTION PV(Rate,nper,pmt,fv,type) where rate = 1%,nper=180 , pmt =-1220 , fv=0, Type=0 .
Here PMT value is taken as negative because it is a cash outflow.

Amortization table :

Loan amortization table from feb 1 to Apr.30

Due for payment on	Note's beginning balance	Monthly payments	Interest on beginning balance @ 1%	Principal payment	Note's carrying value
	[1]	[2]	[3]	[4]=[2]-[3]	[1]-[4]
Feb.1					$101,652
Feb.28	$101,652	$1,220	$1,017	$203	$101,449
Mar.31	$101,449	$1,220	$1,014	$206	$101,243
Apr.30	$101,243	$1,220	$1,012	$208	$101,035

ekkarill92 answered 1 year ago

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