Roberts Co. will borrow $250,000 on June 30th, 2021. The CFO is trying to decide whether to accept principal and interest payments over the term of the loan or to pay interest only with a balloon payment at the end. Terms are 12% interest compounded quarterly, the first payment is due Sept 1, 2021, and the last payment is due July 1, 2023. Payments would be made quarterly.

Instructions

Compare total interest paid under both methods, and then calculate the balance sheet presentation as of December 31, 2021.

Fully Amortized Loan

Fully amortized $250,000 loan at 12% APR compounded quarterly with 8 equal payments

	Beg. Bal.	Payment	New balance	Interest	Ending Bal.
30-Jun-21	250,000.00
1-Sep-21
1-Jan-22
1-Apr-22
1-Jul-22
1-Sep-22
1-Jan-23
1-Apr-23
1-Jul-23

Interest Only Loan

Interest only $250,000 loan at 12% APR compounded quarterly with the balance due July 1, 2023.

	Beg. Bal.	Payment	New balance	Interest	Ending Bal.
30-Jun-21	250,000.00
1-Sep-21
1-Jan-22
1-Apr-22
1-Jul-22
1-Sep-22
1-Jan-23
1-Apr-23
1-Jul-23

Answer rating: 100% (QA)

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