Question

Beta purchased a computer at a cost of $ 45,000. To finance the purchase, he signed a five-year promissory note, which requires five equal annual payments. Beta will make the first payment in a year. Each payment will be in the amount of $ 12,795.

Suppose the note from the previous year carries an interest rate of 12% and Beta will pay $ 10,000 annually over the five years of the note. At the end of year 5, in addition to the $ 10,000, Beta will pay an additional amount.

1) What additional amount will Beta have to pay to pay off the promissory note?
2) How much will Beta owe after making the third annual payment?
3) What is the wage entry for the fifth payment, including the amount calculated in question (1)?

Answer 1

REFER THE TABLE FIRST -

ANSWER 1) 15000 $ additional amount will Beta have to pay to pay off the promissory note.

ANSWER 2) 15000 $ will Beta owe after making the third annual payment (it may called as 15000 $ remaining at the starting of 4th year or at the end of 3rd year)

ANSWER 3) 25000 $ (10000 + 15000) is the wage entry for the fifth payment, including the amount calculated in question (1)

YEAR AMOUNT REMAINING TO PAY AMT. PAID EACH YEAR (AT STARTING DATE OF YEAR) INTEREST @ 12% 1 10000 45000 5400 (45000*12%) 2 10000 35000 4200 (35000*12%) 3 10000 25000 3000 (25000*12%) 4 10000 15000 1800 (15000*12%) 5 10000 5000 600 (5000*12%) 50000 125000 15000 TOTAL