Question

The following instalment payment schedule is for a long-term bank loan payable: Reduction of Interest Cash Payment Principal Interest Period Principal Balance Expense $79,000.00 Issue date $4,740.00 $18,754.32 $14,014.32 64,985.68 1 2 18,754.32 3,899.14 14,855.18 50,130.50 15,746.49 3 18,754.32 3,007.83 34,384.01 4 18,754.32 2,063.04 16,691.28 17,692.73 5 18,754.32 1,061.59 17,692.73 0.00 Is the above schedule a fixed principal plus interest or blended principal and interest payment schedule? LINK TO TEXT Assuming payments are made annually, what is the interest rate on the bank loan? (Round answer to the nearest whole percent, e.g. 12%.) Interest rate %

Answer 1

1st part:

blended principal and interest payment schedule.

(since the reduction of principal each year is uneven).

2nd part.

interest = 6%.

working:

first interest expense / first principal balance*100

=>4740/79000*100

=>6%.

3rd part.

journal entry for first payment:

loan payable a/c	14,014.32
interest expense	4,740.00
.........To cash a/c		18,754.32

4th part:

current and non current portions at end of period 2:

current portion (i.e reduction of period 3)	15,746.49
non current (i.e principal balance at end of period 3)	34,384.01