41) Stephen’s Storage Company needed some long-term financing and arranged for a 20-year, $100,000, 9% mortgage loan on January 1, 2011. Annual payments of $10,955 will be made on December 31 each year.
Part A:
Prepare an amortization schedule for the first two loan payments:
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Mortgage balance
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Annual payment
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Interest portion of mortgage
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Amount of mortgage reduction
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Beginning
balance
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$100,000
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1st
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$
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$
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$
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After 1st payment
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$
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2nd
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$
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$
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$
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Part B:
Show the effect on the accounting equation of each of the events listed below:
Shareholders' equity
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Assets
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Liabilities
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CC
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Retained earnings
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Jan. 1, 2011, borrowed $100,000
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Dec. 31, 2011, made the first loan payment
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Dec. 31, 2012 made the second loan payment
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Part C:
For each item listed below, fill in the correct dollar amount in the column that represents the financial statement where the item will appear.
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Income Statement
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Statement of Cash Flows
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Balance Sheet
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1
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Interest expense for 2011
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2
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Mortgage payable at December 31,2011
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3
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Interest paid in 2011
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4
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Loan principal paid in 2011
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5
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Interest expense for 2012
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6
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Mortgage payable at December 31, 2012
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7
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Interest paid in 2012
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8
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Loan principal paid in 2012
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42) Ron’s Wrenches needs a new, $35,000 delivery truck. Ron sees two alternatives:
1. Buy the truck for $35,000 by signing a 5-year, 6% installment note. Monthly payments will be $675.
2. Sign a 5-year lease to rent the truck for $650 a month. Ron’s Wrenches will not own the truck when the lease expires.
Required:
Show the effect on the accounting equation of: a.) purchasing the truck by signing a $35,000 installment note and b.) the entry to record the first payment.
Shareholders' equity
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Assets
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Liabilities
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CC
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Retained earnings
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a.
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b.
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c. Will leasing the truck require different entries?
d. Is it ethical for a company to acquire the use of assets by renting them?
43) On May 1, 2009, DS Company borrowed $50,000 at 7% to buy a machine. The loan will be repaid in equal annual payments at the end of each of the next 5 years, beginning May 1, 2010.
Part A:
What is the annual payment on the $50,000 loan?
Part B:
Complete the amortization schedule for the five years of the loan repayment:
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Mortgage balance
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Annual payment
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Interest portion of mortgage
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Amount of mortgage reduction
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Beginning
balance
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$50,000
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1st
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After 1st payment
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2nd
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After 2nd payment
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3rd
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After 3rd payment
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4th
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After 4th payment
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5th
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After 5th payment
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0
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