On February 1, Willmar Corporation borrowed $100,000 from its bank by signing a

Question

On February 1, Willmar Corporation borrowed $100,000 from its bank by signing a 12 percent, 15-year note payable. The note calls for 180 monthly payments of $1,220. Each payment includes an Interest and a principal component a. Compute the interest expense in February b. Compute the portion of Willmar's March 31 payment that will be applied to the principal of the note. (Round your Intermedlate calculations and final answer to the nearest dollar amount.) c. Compute the carrying value of the note on April 30. (Round your Intermedlate calculations and final answer to the nearest dollar amount.) 1,000 a. Interest expense b. Principal Carrying valu

Explanation / Answer

Answer to Question 1:

Value of Notes Payable = $100,000
Annual Interest Rate = 12%
Monthly Interest Rate = 1%

Answer a.

Interest Expense in February = $100,000 * 1%
Interest Expense in February = $1,000

Principal Repaid in February = $1,220 - $1,000
Principal Repaid in February = $220

Balance Outstanding = $100,000 - $220
Balance Outstanding = $99,780

Answer b.

Interest Expense in March = $99,780 * 1%
Interest Expense in March = $998

Principal Repaid in March = $1,220 - $998
Principal Repaid in March = $222

Balance Outstanding = $99,780 - $222
Balance Outstanding = $99,558

Answer c.

Interest Expense in April = $99,558 * 1%
Interest Expense in April = $996

Principal Repaid in April = $1,220 - $996
Principal Repaid in April = $224

Balance Outstanding = $99,558 - $224
Balance Outstanding = $99,334

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