Question : 41) Stephen’s Storage Company needed some long-term financing and arranged : 1253321

 

41) Stephen’s Storage Company needed some long-term financing and arranged for a 20-year, $100,000, 9% mortgage loan on January 1, 2011. Annual payments of $10,955 will be made on December 31 each year.

 

Part A: Prepare an amortization schedule for the first two loan payments:

 

Mortgage balance

 

Annual payment

Interest portion of mortgage

Amount of mortgage reduction

Beginning

balance

$100,000

1st

$

$

$

After 1st payment

$

2nd

$

$

$

 

Part B: Show the effect on the accounting equation of each of the events listed below:

Shareholders’ equity

 

Assets

Liabilities

CC

Retained earnings

Jan. 1, 2011, borrowed $100,000

 

 

 

 

Dec. 31, 2011, made the first loan payment

 

 

 

 

Dec. 31, 2012 made the second loan payment

 

 

 

 

 

Part C: For each item listed below, fill in the correct dollar amount in the column that represents the financial statement where the item will appear.

 

 

 

Income Statement

Statement of Cash Flows

Balance Sheet

1

Interest expense for 2011

 

 

 

2

Mortgage payable at December 31,2011

 

 

 

3

Interest paid in 2011

 

 

 

4

Loan principal paid in 2011

 

 

 

5

Interest expense for 2012

 

 

 

6

Mortgage payable at December 31, 2012

 

 

 

7

Interest paid in 2012

 

 

 

8

Loan principal paid in 2012

 

 

 

 

 

 

42) Ron’s Wrenches needs a new, $35,000 delivery truck. Ron sees two alternatives:

1. Buy the truck for $35,000 by signing a 5-year, 6% installment note. Monthly payments will be $675.

2. Sign a 5-year lease to rent the truck for $650 a month. Ron’s Wrenches will not own the truck when               the lease expires.

 

Required:

Show the effect on the accounting equation of:  a.) purchasing the truck by signing a $35,000 installment note and b.) the entry to record the first payment.

 

Shareholders’ equity

 

Assets

Liabilities

CC

Retained earnings

a.

 

 

 

 

b.

 

 

 

 

 

c. Will leasing the truck require different entries?

d. Is it ethical for a company to acquire the use of assets by renting them?

 

 

43) On May 1, 2009, DS Company borrowed $50,000 at 7% to buy a machine. The loan will be repaid in equal annual payments at the end of each of the next 5 years, beginning May 1, 2010.

 

Part A: What is the annual payment on the $50,000 loan?

Part B: Complete the amortization schedule for the five years of the loan repayment:

 

 

Mortgage balance

 

Annual payment

Interest portion of mortgage

Amount of mortgage reduction

Beginning

balance

$50,000

1st

 

 

 

After 1st payment

 

2nd

 

 

 

After 2nd payment

 

3rd

 

 

 

After 3rd payment

 

4th

 

 

 

After 4th payment

 

5th

 

 

 

After 5th payment

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