In: Accounting
Dear Expart,
Please teach me the following questions:
On February 1, Willmar Corporation borrowed $100,000 from its
bank by signing a 12 percent,15year note payable. The note calls
for180 monthly payments of $1,470. Each paymentincludes an interest
and a principal component.
a. Compute the interest expense in February.
b. Compute the portion of Willmar's March 31 paymentthat will be
applied to the principal ofthe
note.(Round yourintermediate calculations and final answerto the
nearest dollar amount.)
c. Compute the carrying value ofthe note on April 30.(Round
yourintermediate calculations
and final answerto the nearest dollar amount.)
Solution:
Wilmar Corporation
February interest expense = principal x interest rate x period of interest
Principal = $100,000
Rate of interest = 12% p. a
Period = 1 month (February)
Interest expense for February = $100,000 x 12% x 1/12 = $1,000
As calculated above, interest expense for February = $1,000
monthly payment = $1,470
interest portion = $1,000
principal portion = $1,470 - $1,000 = $470
Outstanding principal for March= 100,000 – 470 = $99,530
Interest expense for March = $99,530 x 12% x 1/12 = $995.30
Monthly payment = $1,470
Interest portion = $995 (rounded off to nearest whole dollar)
Principal portion = $1,470 - $995 = $475
Hence, principal portion of the March 31 payment = $475
Outstanding principal for April 1 = 100,000 – 470 – 475 = $99,055
Interest expense = 99,055 x 12% x 1/12 = $991
Principal portion of monthly payment is computed as follows,
Monthly payment – interest expense = 1,470 – 991 = $479
Hence, principal portion of monthly payment for April = $479
Carrying value of principal as on April 30 = $99,055 - $479 = $98,576