Peter Furlong has just approached a venture capitalist for financing for his sailing school. The lenders are willing to lend
Peter Furlong has just approached a venture capitalist for financing for his sailing school. The lenders are willing to lend Peter $120,000 in exchange for a note payable at a high-risk interest rate of 7%. The note is payable over three years in blended payments of $22,520. Payments are made semi-annually on October 31 and April 30. Peter receives the $120,000 on May 1, 2014, the first day of his fiscal year.
(a) Record the issue of the note payable on May 1.
(b) Prepare an instalment payment schedule.
(c) Record the first two instalment payments on October 31 and April 30.
(d) What amounts would be reported as current and non-current in the liabilities section of the company’s April 30, 2015, balance sheet?
(e) If the note had been repayable in fixed principal payments, rather than in blended payments, calculate how much the cash payments would have been on October 31 and April 30.
TAKING IT FURTHER Indicate which instalment payment method (blended or fixed) results in the largest principal repayment on April 30, 2017 (the date of the last payment). Explain.
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