Brief Exercise 21-7 Installment note [LO21-3, 21-6] On January 1, 2018, the Merit Group issued to...
Brief Exercise 21-7 Installment note [LO21-3, 21-6]
On January 1, 2018, the Merit Group issued to its bank a $54
million, five-year installment note to be paid in five equal
payments at the end of each year. Installment payments of $14.245
million annually include interest at the rate of 10.0%.
What would be the amount(s) related to the note that Merit would
report in its statement of cash flows for the year ended December
31, 2018?
|
Homework Answers
Solution
| ($ in millions) | |
| Cash inflow from financing activities | $ 54.00 |
| Cash outflow from financing activities | $ (8.845) |
*Put repayment in negative if required.
Cash inflow will be $54 million for the issue of note.
The repayment may be of $14.245 million but in 14.245 million the interest will be reported in operating section of cash flo. The repayment of note will only be reported as cash outflow in financing section. The outflow of note in million will be 8.845.
Interest for 1st year = 54 x 10%=$5.4 million
Installment minus interest = repayment of loan
14.245-5.4=$8.845
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