Zelda’s Diamond Emporium engaged in the following transactions related to long-term liabilities during 2009:
a. On July 1, 2009, the company borrowed $150,000 for a new piece of office equipment. The loan is to be repaid in equal annual payments of $15,444 at the end of each of the next 15 years (beginning June 30, 2010); and the interest rate Zelda’s is paying for this loan is 6%.
b. On October 1, the company borrowed $250,000 from the local credit union at an interest rate of 8%. The loan is for 15 years, and Zelda’s will make annual payments of $29,207 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 Zelda’s show on its income statement for the year ended December 31, 2009?
3. How much interest payable would Zelda’s show on its balance sheet at December 31, 2009?

  • CreatedSeptember 01, 2014
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