Question

Coopy Corp. bought equipment for $500,000 on March 1, 2017 down paying $70,000 and signing a note for the rest. Coopy Corp. agreed to make 20 equal quarterly payments for 5 years starting June 1, 2017. The interest rate on this loan is 12%.

a) How much interst payable should be in Coopy Corp's balance on December 31, 2018?

b) What will be the carrying value (CV) on December 1, 2020 after the payment has been made?

Answer 1

a

Quarterly payment is:

Quarterly payment	=	[P * R * (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	4,30,000.00
Rate of interest per period:
Annual rate of interest		12.000%
Frequency of payment	=	Once in 3 month period
Numer of payments in a year	=	12/3 =
Rate of interest per period	R	0.12 /4 =
Total number of payments:
Frequency of payment	=	Once in 3 month period
Number of years of loan repayment	=	5
Total number of payments	N	5*4 =
Period payment using the formula	=	[ 430000*0.03*(1+0.03)^20] / [(1+0.03 ^20 -1]
Quarterly payment	=	28,902.75

By december 1, 2018 number of payments made are 7, loan balance after 7 months is:

Loan balance	=	PV * (1+r)^n - P[(1+r)^n-1]/r
Loan amount	PV =	4,30,000.00
Rate of interest	r=	3.0000%
nth payment	n=	7
Payment	P=	28,902.75
Loan balance	=	430000*(1+0.03)^7 - 28902.75*[(1+0.03)^7-1]/0.03
Loan balance	=	3,07,379.50

Interest for one month for Dec 31, 2018 balance sheet = 3,07,379.50 * 12% * 1/12 = 3,073.80

Answer is 3,073.80

b

Number of payments made by then are 15. Loan balance is:

Loan balance	=	PV * (1+r)^n - P[(1+r)^n-1]/r
Loan amount	PV =	4,30,000.00
Rate of interest	r=	3.0000%
nth payment	n=	15
Payment	P=	28,902.75
Loan balance	=	430000*(1+0.03)^15 - 28902.75*[(1+0.03)^15-1]/0.03
Loan balance	=	1,32,366.15