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Ch08QuizSol

# Ch08QuizSol - Quiz#5 Chapter 8 Solution Use the following...

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Quiz #5 - Chapter 8 - Solution Use the following information for questions 1 - 3 Western States Company financed new equipment costing \$1,000,000 with a ten-year loan that required semi-annual payments (every six months). The first payment was made 6 months after the loan date. The lender charged 8% interest on the loan. 1. (1 pt) What will Western's semi-annual payments be, assuming that the note and interest are paid in equal semi-annual payments? PVA = Payment * Interest factor (20 periods, 4%) \$1,000,000 = Payment * 13.59033 (from Table 4) Payment = \$1,000,000 ÷ 13.59033 Payment = \$73,581.73 2. (2 pts) How much interest expense (in total) will the company record for the first two years of the note? Period Present Value at Beginning of Period Interest Expense at 4% Payment Repayment of Principal Value of Debt at End of Period 1 2 3 4 \$1,000,000 \$966,418 \$931,493 \$895,171 \$40,000 \$38,657 \$37,260 \$35,807 \$151,724 \$73,582 \$73,582 \$73,582 \$73,582 \$33,582 \$34,925 \$36,322 \$37,775 \$966,418 \$931,493 \$895,171 \$857,396 3. (3 pts) Using the format presented in the chapter, show how the third payment would be recorded in the accounting system.

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