Asked by Steven Camarena on May 03, 2024
Verified
On January 1, Year 1, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 2 carrying amount in the amortization table for this installment note will be equal to
A) $26,000
B) $27,635
C) $21,642
D) $28,402
Installment Note
A loan that is repaid over time with a set number of scheduled payments.
Carrying Amount
The book value of assets and liabilities as recorded in the financial statements, reflecting historical costs adjusted for depreciation, amortization, and impairment.
- Calculate the fluctuating carrying amounts of bonds and installment notes over periods.
Verified Answer
MA
Martin AlcocerMay 09, 2024
Final Answer :
B
Explanation :
The carrying amount of the installment note on December 31, Year 2, can be calculated by first determining the interest and principal components of the annual payments and then subtracting these from the initial loan amount over the two payment periods. The annual payment is $15,179.For Year 1:- Interest for Year 1 = $52,000 * 6.5% = $3,380- Principal repayment for Year 1 = $15,179 - $3,380 = $11,799- Remaining balance after Year 1 = $52,000 - $11,799 = $40,201For Year 2:- Interest for Year 2 = $40,201 * 6.5% = $2,613.07 (rounded)- Principal repayment for Year 2 = $15,179 - $2,613.07 = $12,565.93 (rounded)- Remaining balance after Year 2 = $40,201 - $12,565.93 = $27,635.07 (rounded)Therefore, the carrying amount on December 31, Year 2, is approximately $27,635, which matches choice B.
Learning Objectives
- Calculate the fluctuating carrying amounts of bonds and installment notes over periods.
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