Financial Accounting: The Impact on Decision Makers - Essay Example

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"Financial Accounting: The Impact on Decision Makers" paper argues that in order to get the amount of cash paid quarterly and the proportion of the first payment which is interest expense and the proportion which is interest, we are going to amortize the loan by preparing the amortization schedule…

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Financial Accounting: The Impact on Decision Makers

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Subject: Finance & Accounting
Type: Essay
Level: Undergraduate
Pages: 1 (250 words)
Downloads: 0
Author: kkshlerin

Extract of sample "Financial Accounting: The Impact on Decision Makers"

Accounting questions Question Since the is noninterest bearing, the face value is got by dividing the amount borrowed by the present value interest factor. Future Value face value PV of $1, n=6, i=7% 0.66634 Present value 100,000 Face value=100,000/0.66634 The interest to be paid at the end of the accounting period is got by getting 7% of the carrying value above. Amount of interest expense= 7% of the carrying value =7%*100,000=$7000

Payment=loan/PVIFA (present value interest factor annuity) PVIFA= {1-[(1+i) ^n] ^-1}/I, where I am the interest rate and n is the number of periods. I=10%/4=2.5% (0.025) and n=2*4=8 PVIFA={1-[1+0.025)^8]^-1}/0.025 =7.1701 Payment= 12000/7.1701 =$1673.62 Amortization year Beginning balance payment interest Principal repayment Ending balance 1 12000 1673.62 300 1373.62 10626.38 2 10626.38 Of the $1673.62 paid back. $ 300 is the interest expense and $1373.62 is the principal repaid.

Question 3: Since the market rate of interest for the note is less than the face rate of interest, the note will be issued at a premium. The notes issue price is computed as follows: Present value of principal: Face value 100,000 PV of 1, n=16, I =3% (6/2) 0.62317 PV of principal 62317 Present value of interest: Face value 100,000 Stated interest 3.5% (7/2) Interest payments 3500 PVOA, n=16, I =3% 12.

56110 PV of interest payments 43963.85 Issue price of note 106280.85 period Cash paid (a) Interest expense (b) Amortization of premium (b-a) Carrying charge (b-a) + c 106280.85 1st 3500 3188.43 -311.57 105969.28 Question 4: Since the market rate of interest for the note is greater than the face rate of interest, the note will be issued at a discount. The notes issue price is computed as follows: Present value of principal: Face value 100,000 PV of 1, n=16, i=4% 0.

53391 PV of principal 53,391 Present value of interest: Face value 100,000 Stated interest 3.5% (7/2) Interest payments 3500 PVOA, n=16, i=4% 11.65230 PV of interest payments 40783.05 Issue price of note 94174.05 Period Cash paid (a) Interest expense (b) Amortization of discount (b-a) Carrying value(c) (b-a) + c 1st 94174.05 3500 3766.96 266.96 94441.01

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