Question

ACC Inter ch 14

a) Emma Company purchased a machine from Noah Corporation on October 31, 2016. In payment for the $140,300 purchase, Emma issued a one-year installment note to be paid in equal monthly payments of $12,465 at the end of each month. The payments include interest at an annual rate of 12%. When recording the December 31, 2016 payment, the Debit to Interest expense will be? $_________

b) Pope Industries purchased a machine from Fitz Corporation on October 1, 2016. In payment for the $211,000 purchase, Pope issued a two year installment note to be paid in equal semi-annual payments at the end of each 6 month period. The payments include interest at an annual rate of 12%.

Each installment payment will be $__________________

Answer 1

	Interest rate per month = 1% (12%/12)
A	Date	Outstanding amount (A)	Interest @1% (B)	Total amount outstanding (C=A+B)	Instalment amount (D)	Balance (E=C-D)
	30-Nov-16	140,300	1,403	141,703	12,465	129,238
	31-Dec-16	129,238	1,292	130,530	12,465	118,065
	31-Jan-17	118,065	1,181	119,246	12,465	106,781
	28-Feb-17	106,781	1,068	107,849	12,465	95,384
	31-Mar-17	95,384	954	96,338	12,465	83,873
	30-Apr-17	83,873	839	84,711	12,465	72,246
	31-May-17	72,246	722	72,969	12,465	60,504
	30-Jun-17	60,504	605	61,109	12,465	48,644
	31-Jul-17	48,644	486	49,130	12,465	36,665
	31-Aug-17	36,665	367	37,032	12,465	24,567
	30-Sep-17	24,567	246	24,813	12,465	12,348
	31-Oct-17	12,348	123	12,471	12,465	6

Ans	Interest expense till 31 Dec 2017
	Nov month	$1,403
	Dec month	$1,292
	Total	$2,695
B	Total no of instalments = 4
	Interest rate per instalment (semi-annual) =6%
	Annuity factor at 6% for 4 instalments = 3.46511
	Instalment amount = total amount to be paid/Annuity factor
Ans	Instalment = $211,000/3.46511	$60,892.73