Problem 10-13A Grace Herron has just approached a venture capitalist for financi

Question

Problem 10-13A

Grace Herron has just approached a venture capitalist for financing for her new business venture, the development of a local ski hill. On July 1, 2013, Grace was loaned $204,000 at an annual interest rate of 6%. The loan is repayable over 5 years in annual installments of $48,429, principal and interest, due each June 30. The first payment is due June 30, 2014. Grace uses the effective-interest method for amortizing debt. Her ski hill company’s year-end will be June 30.

Period

Cash
Payment

Interest
Expense

Principal
Reduction

Balance

SHOW LIST OF ACCOUNTS

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Date

Account Titles and Explanation

Debit

Credit

SHOW LIST OF ACCOUNTS

LINK TO TEXT

GRACE HERRON
Balance Sheet (Partial)
June 30, 2015

Problem 10-13A

Grace Herron has just approached a venture capitalist for financing for her new business venture, the development of a local ski hill. On July 1, 2013, Grace was loaned $204,000 at an annual interest rate of 6%. The loan is repayable over 5 years in annual installments of $48,429, principal and interest, due each June 30. The first payment is due June 30, 2014. Grace uses the effective-interest method for amortizing debt. Her ski hill company’s year-end will be June 30.

Explanation / Answer

Cash Payment (1) Interest Expense ($) (2) Principal Reduction ($) (1)-(2) Balance 1-Jul-13 NIL NIL NIL 204000 30-Jun-14 48429 12240 [204000*6%] 36189 167811 [204000-36189] 30-Jun-15 48429 10069 [167811*6%] 38360 129451 [167811-38360] 30-Jun-16 48429 7767 [129451*6%] 40662 88789 [129451-40662] 30-Jun-17 48429 5327 [88789*6%] 43102 45687 [88789-43102] 30-Jun-18 48429 2742 [45687*6%] 45687 0 [48687-45687] JOURNAL ENTRY 01.07.2013 Bank A/c Dr 204000 To Loan A/c 204000 (Being loan taken) 30.06.2014 Intt A/c Dr 12240 Loan A/c Dr 36189 To Bank A/c 48429 (Being Instt paid) 30.06.2014 P & L A/c Dr 12240 To Intt A/c 12240 (Being intt charged to P & L A/c) 30.06.2015 Intt A/c Dr 10069 Loan A/c Dr 38360 To Bank A/c 48429 (Being Instt paid) 30.06.2015 P & L A/c Dr 10069 To Intt A/c 10069 (Being intt charged to P & L A/c) Extract of Balance Sheet as on 30.06.2015 Long term Liabilities Long term loan 88789 Current Liability Long term loan due within 1 yr 40662 Cash Payment (1) Interest Expense ($) (2) Principal Reduction ($) (1)-(2) Balance 1-Jul-13 NIL NIL NIL 204000 30-Jun-14 48429 12240 [204000*6%] 36189 167811 [204000-36189] 30-Jun-15 48429 10069 [167811*6%] 38360 129451 [167811-38360] 30-Jun-16 48429 7767 [129451*6%] 40662 88789 [129451-40662] 30-Jun-17 48429 5327 [88789*6%] 43102 45687 [88789-43102] 30-Jun-18 48429 2742 [45687*6%] 45687 0 [48687-45687] JOURNAL ENTRY 01.07.2013 Bank A/c Dr 204000 To Loan A/c 204000 (Being loan taken) 30.06.2014 Intt A/c Dr 12240 Loan A/c Dr 36189 To Bank A/c 48429 (Being Instt paid) 30.06.2014 P & L A/c Dr 12240 To Intt A/c 12240 (Being intt charged to P & L A/c) 30.06.2015 Intt A/c Dr 10069 Loan A/c Dr 38360 To Bank A/c 48429 (Being Instt paid) 30.06.2015 P & L A/c Dr 10069 To Intt A/c 10069 (Being intt charged to P & L A/c) Extract of Balance Sheet as on 30.06.2015 Long term Liabilities Long term loan 88789 Current Liability Long term loan due within 1 yr 40662

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