6. On January 1, Wonder Water borrowed $300,000 for 5 years at 4.5% to finance expansion....

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6. On January 1, Wonder Water borrowed $300,000 for 5 years at 4.5% to finance expansion....

6. On January 1, Wonder Water borrowed $300,000 for 5 years at 4.5% to finance expansion. Fixed principal payments are to be made quarterly beginning Mar 1. Below is an instalment schedule for Wonder Water. (13 marks)

WONDER WATER

INSTALMENT PAYMENT SCHEDULE- FIXED PRINCIPAL PAYMENTS

Interest Period	Cash Pmt	Interest Expense	Reduction of Principal	Principal
Jan 1				300,000
Mar 1	?	3,375	5,000	295,000
Jun 1	8,319	?	5,000	?
Sep 1	?	3,263	?	285,000
Dec 1	?	?	5,000	?

Instructions

(a) Determine the missing values (round to the nearest dollar).

(b) Prepare the journal entries for the payments made on March 1 and Sept 1.

business accounting

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Answer 1

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Answer

Interest Period	Cash Pmt	Interest Expense	Reduction of Principal	Principal
Jan-01				$300,000
Mar-01	$8,375	$3,375	$5,000	$295,000
Jun-01	$8,319	$3,319	$5,000	$290,000
Sep-01	$8,263	$3,263	$5,000	$285,000
Dec-01	$8,206	$3,206	$5,000	$280,000

--Working

Cash Pmt	Interest Expense	Reduction of Principal	Principal
			300000
=3375+5000	3375	5000	295000
8319	=8319-5000	5000	=295000-5000
=5000+3263	3263	5000	285000
=5000+3206	*=2850004.5%0.25*	5000	=285000-5000

Journal entries

Date	Accounts title	Debit	Credit
Mar-01	Notes Payable /Long term loans	$5,000
	Interest Expense	$3,375
	Cash		$8,375

Sep-01	Notes Payable /Long term loans	$5,000
	Interest Expense	$3,263
	Cash		$8,263

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Answer 2

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6. On January 1, Wonder Water borrowed $300,000 for 5 years at 4.5% to finance expansion....

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