Grace Herron has just approached a venture capitalist for financing for her new

Question

Grace Herron has just approached a venture capitalist for financing for her new business venture, the development of a local ski hill. On July 1, 2013, Grace was loaned $265,000 at an annual interest rate of 7%. The loan is repayable over 5 years in annual installments of $64,631, principal and interest, due each June 30. The first payment is due June 30, 2014. Grace uses the effective-interest method for amortizing debt. Her ski hill company’s year-end will be June 30. Prepare an amortization schedule for the 5 years, 2013–2018

Explanation / Answer

Amortization schedule

Period Cash Payment Interest Exp Priciple Deduction Balance July 1, 2013 $265,000 June 30, 2014 $64,631 ($265,000 * 7%) = $18,550 ($64,631-18550) = $46,081 ($265,000 - 46,081) = $218,919 June 30, 2015 $64,631 ($218,919 * 7%) = $15,324 ($64,631- 15324) = $49,307 ($218,919 - 49,307) = $169,612 June 30, 2016 $64,631 ($169,612 * 7%) = $11,873 ($64,631- 11873) =$52,758 ($169612 - 52833) = $116,854 June 30, 2017 $64,631 ($116,854 *7%) =$8,180 ($64,631- 8180 ) =$56,451 ($116,854 - 56,451) =$60,403 June 30, 2018 $64,631 ($60,403 * 7%) =$4,228 ($64,631- 4,228) = $60403 $0 Total $323,155 $58,155 $265,000

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