Question

S Powered by B eCampus ePortfolios Community Content Collection s > HW Assignment 10-Chapter 10 Menu QUESTION9 Correct Mark 1,00 out of 1,.00 PFlag question Edit question On January 2, 2016, Jenga Company purchased new manufacturing equipment. They paid $50,000 as a down payment and issued a long-term note to finance the balance. The note, which carries an interest rate of 4%, requires Jenga to make semiannual loan payments of $35,000 for five years, with the first payment due on june 30, 2016. Determine the amount of interest expense Jenga will record with the SECOND interest payment (on December 31, 2016). Round all parts of your calculation as you work through the effective interest amortization schedule to the nearest whole dollar Answer 5,714 The correct answer is: 5714 Finish review MacBook Air 888 Fa 80B F5 3 4 5 7 9

Answer 1

Solution:

Semiannual payment on notes = $35,000

Nos of semiannual period = 5*2 = 10

Semiannual interest rate = 4%/2 = 2%

Present value of note = $35,000 * Cumulative PV Factor at 2% for 10 periods

= $35,000 * 8.982585

= $314,390

Interest expense in first installment payment = $314,390 * 2% = $6,288

Note Payable balance after first payment = $314,390 + $6,288 - $35,000 = $285,678

Interest expense in second payment on 31.12.2016 = $285,678*2% = $5,714