In: Accounting
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.)
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 |