Question

In: Accounting

On November 1, 2018, Company borrowed $30,000 from a bank sign a 12-month, 6% interest rate...

On November 1, 2018, Company borrowed $30,000 from a bank sign a 12-month, 6% interest rate the first payment due on December 1, 2018. What should the company report on B/S, I/S and Statement of cashflow on Dec 31, 2018 and Dec 31, 2019?

Expert Solution

Answer:

given in question:

Loan Borrowed $30000 FOR 12 MONTH

INTEREST @6%

first method:

We Assume that principal of $2500 is paid every month for 12 months and interest is calculated every month on balance loan.

Below table shows the principal and interest amount:

MONTHS	Balance	principal	Interest
Dec-18	30000	2500	1800
Jan-19	27500	2500	1650
Feb-19	25000	2500	1500
Mar-19	22500	2500	1350
Apr-19	20000	2500	1200
May-19	17500	2500	1050
Jun-19	15000	2500	900
Jul-19	12500	2500	750
Aug-19	10000	2500	600
Sep-19	7500	2500	450
Oct-19	5000	2500	300
Nov-19	2500	2500	150
Dec-19	0	2500	0

As per this month company should show the amounts in following way

A. In Balance Sheet

2018 Loan is shown of $ 27500 under the head current liability.

2019 Loan amount is zero.

B. In Income statement

2018 Interest of $1800 and principal of $2500 is shown on the payment side.

2019 Interest of $ 9900 and principal of $27500 is shown on the payment side.

C. In Cash flow

2018 Interest of $1800 and principal of $2500 is shown on the payment side.

2019 Interest of $ 9900 and principal of $27500 is shown on the payment side.

Second Method:

We Assume that principal of $2500 is paid at the end of 12 month but interest is calculated every month on whole loan

Below table shows the principal and interest amount:

MONTHS	Balance	principal	Interest
Dec-18	30000	0	1800
Jan-19	30000	0	1800
Feb-19	30000	0	1800
Mar-19	30000	0	1800
Apr-19	30000	0	1800
May-19	30000	0	1800
Jun-19	30000	0	1800
Jul-19	30000	0	1800
Aug-19	30000	0	1800
Sep-19	30000	0	1800
Oct-19	30000	0	1800
Nov-19	30000	0	1800
Dec-19	30000	0	0

As per this month company should show the amounts in following way

A. In Balance Sheet

2018 Loan is shown of $ 30000 under the head current liability.

2019 Loan amount is zero.

B. In Income statement

2018 Interest of $1800 is shown on the payment side.

2019 Interest of $ 19800 is shown on the payment side.

C. In Cash flow

2018 Interest of $1800 is shown on the payment side.

2019 Interest of $ 19800 and principal of $30000 is shown on the payment side.

ekkarill92 answered 2 years ago

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