Peter Furlong has just approached a venture capitalist for financing for his sailing school. The lender is willing to loan Peter $100,000 at a high-risk interest rate of 12%. The loan is payable over three years in fixed principal payments each quarter of $8,333, plus interest. Peter signs a note payable and receives the loan on April 30, 2012. He makes the first payment on July 31. The company's yearend is October 31.
Instructions
(a) Prepare an instalment payment schedule for the three years. Round all amounts to the nearest dollar.
(b) Record the receipt of the funds from the note on April 30.
(c) Record the first two instalment payments, on July 31 and October 31.
(d) Show the statement of financial position presentation of the note payable at October 31, 2012.
(e) Explain how the quarterly and total cash payments would change if the note had been payable in blended principal and interest payments of $10,046, rather than fixed principal payments plus interest.