Question

Matthew purchased a new piece of equipment to be used in its new facility. The $400,000 piece of equipment was purchased with a $40,000 down payment and with cash received through the issuance of a $360,000, 9%, 5-year mortgage payable issued on January 1, 2022. The terms provide for annual installment payments of $92,553 on December 31.

Required:
Prepare an installment payments schedule for the first five payments of the notes payable.

Answer 1

Answer:

The ending balance after the first five payments of the notes payable is $1.70.

Explanation:

Note: See the attached excel file for the installment payments schedule for the first five payments of the notes payable.

In the attached excel file, the following are calculated as follows:

Beginning balance for the year 2022 = Value of the note payable

For other years, Beginning balance for a particular year = Previous year's ending balance

Interest expense for each year = Beginning balance for each year * Interest rate

Principal paid for each year = Annual installment - Interest expense for each year

Ending balance for each year = Beginning balance for each year - Principal paid for each year

From the attached excel file, the ending balance after the first five payments of the notes payable is $1.70.