Question

7. On January 1, Marvelous Metals borrowed $1,200,000 at 7% for 15 years to begin the development of a new mine. Blended principal payments must be made on the first day of each month. (18 marks)

Instructions

(a) Complete the instalment schedule listed below (round to the nearest dollar).

(b) Assuming the year end is March 31, prepare the necessary adjusting entry.

(c) Prepare the journal entries for the payments made on May 1 and June 1.

MARVELOUS METALS

INSTALMENT PAYMENT SCHEDULE- BLENDED PRINCIPAL PAYMENTS

Interest Period	Cash Pmt	Interest Expense	Reduction of Principal	Principal
Jan 1				1,200,000
Feb 1	10,785	?	3,785	1,196,215
Mar 1	?	?	3,807	?
Apr 1	10,785	6,956	?	?
May 1	10,785	?	?	1,184,727
Jun 1	?	?	?	?

Answer 1

Solution a:

Interest Period	Cash Payment	Interest Expense	Reduction of Principal	Principal
1-Jan				$1,200,000
1-Feb	$10,785.00	$7,000	$3,785	$1,196,215
1-Mar	$10,785.00	$6,978	$3,807	$1,192,408
1-Apr	$10,785.00	$6,956	$3,829	$1,188,579
1-May	$10,785.00	$6,933	$3,852	$1,184,727
1-Jun	$10,785.00	$6,911	$3,874	$1,180,853

solution b:

Journal Entries
Date	Particulars	Debit	Credit
31-Mar	Interest expense Dr	$6,956.00
	To Interest payable		$6,956.00
	(to record accrual of interest)

Solution c:

Journal Entries
Date	Particulars	Debit	Credit
1-May	Interest expense Dr	$6,933.00
	Notes payable Dr	$3,852.00
	To Cash		$10,785.00
	(To record installment payment)
1-Jun	Interest expense Dr	$6,911.00
	Notes payable Dr	$3,874.00
	To Cash		$10,785.00
	(To record installment payment)