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lionheart
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Joined: 07 Apr 2009
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Posted: 01 Jul 2010 at 23:57 \| IP Logged

On September 20, World Co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. In its December 31, balance sheet, what amount should World report as notes payable?

a. $735,800
b. $750,000
c. $758,300
d. $825,800

Answer is apparently c, but I dunno why. Anyone, plz help??

mits07
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Joined: 22 Jan 2010
Location: United States
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Posted: 02 Jul 2010 at 00:07 \| IP Logged

The note payable has an interest of 9%. You have to include the interest of $22,500 [1,000,000 * .09 * 3/12] + remaining balance of the note which is 735,800 [1,000,000 - 264,200] = 758,300

Mars
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Joined: 11 Mar 2007
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Posts: 514

Posted: 02 Jul 2010 at 07:37 \| IP Logged

Whaaaat ??

Averalis
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Joined: 07 May 2010
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Posts: 93

Posted: 02 Jul 2010 at 07:57 \| IP Logged

The interest on the $1m is 9%, but only 3 out of 12 months
have accrued by year end. So the payment being made
consists of both interest and principal for those 3 months.
The interest portion is [1m * (.09/4)] = 22,500. When you
subtract out the interest, the principal portion of the
payment is $241,700. Therefore the balance is reduced by
$241,700 to get $758,300.

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Mars
Major Contributor

Joined: 11 Mar 2007
Online Status: Offline
Posts: 514

Posted: 02 Jul 2010 at 08:40 \| IP Logged

Averalis wrote:

The interest on the $1m is 9%, but only 3 out of 12 months
have accrued by year end. So the payment being made
consists of both interest and principal for those 3 months.
The interest portion is [1m * (.09/4)] = 22,500. When you
subtract out the interest, the principal portion of the
payment is $241,700. Therefore the balance is reduced by
$241,700 to get $758,300.

Thanks

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