A local company has just approached a venture capitalist for financing to develop a ski hill. On April 1, 2021, the venture capitalist lent the company $1 million at an interest rate of 5%. The loan is repayable over four years in fixed principal payments. The first payment is due March 31, 2022. The ski hill operator’s year end will be December 31.

Instructions

a. Record the issue of the note payable on April 1, 2021.

b. Calculate the amount of the fixed principal payment.

c. Prepare an instalment payment schedule.

d. Record the accrual of interest on December 31, 2021, and the instalment payment on March 31, 2022.

e. What amounts would be reported as current and non-current in the liabilities section of the company’s December 31, 2021, balance sheet?

f. Record the accrual of interest on December 31, 2022, and the instalment payment on March 31, 2023.

Taking It Further

Explain how the interest expense and reduction of the note payable would change in parts (b) and (c) if the note had been repayable in blended payments of $282,012, rather than in fixed principal payments.