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 Topic: 2010 AICPA Question ( Topic Closed)
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lionheart
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| Posted: 01 Jul 2010 at 23:57 | IP Logged
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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??
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mits07
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| Posted: 02 Jul 2010 at 00:07 | IP Logged
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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
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Mars
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| Posted: 02 Jul 2010 at 07:37 | IP Logged
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Whaaaat ??
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Averalis
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| Posted: 02 Jul 2010 at 07:57 | IP Logged
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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
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| Posted: 02 Jul 2010 at 08:40 | IP Logged
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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.
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Thanks
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