Liabilities: Cody Company borrowed $330,000 on September 30, Year 1. The lender’

Question

Liabilities:

Cody Company borrowed $330,000 on September 30, Year 1.  The lender’s interest rate was 8% and Cody was obligated to make eight equal quarterly payments starting on December 31, Year 1.  The loan would be fully amortized [‘paid off’] as a result of these eight payments.

Required:  Determine the proper values for the items identified below:

$_________ Interest Expense on this loan in the first six months of this borrowing arrangement. [September 30, Year 1-March 31, Year 2].

$_________The carrying value of this loan on September 30, Year 2, after the four quarterly payments up to that date had been made and properly recorded.

Explanation / Answer

Quarterly payment = Loan amount /PVAF@2%, 8

                                          = 330,000 / 7.32548

                                             = 45048.24 Per quarter.

Interest expense for first 6 month = 6600+5831.04 = 12431.04

Carrying value at 30 sep -year 2 = 171531.43

Date Book value at beginning (A) Interest B = (A*.02) Payment(c) principal (D = C -B) Balance at end (A- D) 31 dec -year 1 330000 6600   (330000*.02) 45048.24 38448.24    [45048.24-6600] 291551.76 [330000-38448.24] 31 march -Year 2 291551.76 5831.04 45048.24 39217..20 252334.56 30 june -year 2 252334.56 5046.69 45048.24 40001.55 212333.01 30sep -year 2 212333.01 4246.66 45048.24 40801.58 171531.43

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