Ultra Power, Inc., engaged in the following transactions related to long-term liabilities during 2011:
a. On March 1, the company borrowed $50,000 for a machine. The loan is to be repaid in equal annual payments of $6,793 at the end of each of the next 10 years (beginning February 28, 2012); the interest rate is 6%.
b. On October 1, the company borrowed $100,000 from the local credit union at an interest rate of 8%. The loan is for seven years, and Ultra Power will make annual payments of $19,207 on September 30 of each year.

1. For each loan, prepare an amortization schedule for the first four payments. Show the reduction in principal and the interest expense for each payment.
2. What total interest expense related to these two loans would Ultra Power, Inc., show on its income statement for the year ended December 31, 2011?
3. How much interest payable would Ultra Power, Inc., show on its balance sheet at December 31, 2011?

  • CreatedSeptember 01, 2014
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