Grace Herron has just approached a venture capitalist for financing for her new
ID: 2490662 • Letter: G
Question
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 $314,000 at an annual interest rate of 5%. The loan is repayable over 5 years in annual installments of $72,526, 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
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Date
Account Titles and Explanation
Debit
Credit
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GRACE HERRON
Balance Sheet (Partial)
June 30, 2015
Period
Cash
Payment
Interest
Expense
Principal
Reduction
Balance
July 1, 2013 $ $ $ $ June 30, 2014 June 30, 2015 June 30, 2016 June 30, 2017 June 30, 2018 ** Amount may be off due to rounding.
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Explanation / Answer
Amortisation Schedule for loan payment
Date
Cash payment
Interest Exp
Principal reduction
Balance
June 30, 2013
-
-
-
3,14,000
June 30, 2014
72,526
15,700
56,826
2,57,174
June 30, 2015
72,526
12,859
59,667
1,97,507
June 30, 2016
72,526
9,875
62,651*
1,34,856*
June 30, 2017
72,526
6,743
65,783
69,073
June 30, 2018
72,526
3,453
69,073
-
July 1/13
June 30/14
June 30/15
Amortisation Schedule for loan payment
Date
Cash payment
Interest Exp
Principal reduction
Balance
June 30, 2013
-
-
-
3,14,000
June 30, 2014
72,526
15,700
56,826
2,57,174
June 30, 2015
72,526
12,859
59,667
1,97,507
June 30, 2016
72,526
9,875
62,651*
1,34,856*
June 30, 2017
72,526
6,743
65,783
69,073
June 30, 2018
72,526
3,453
69,073
-
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