Question

On November 1, 2018, A-1 Products borrowed $64,000 on a 5%, 5-year note with annual installment payments of $12,800 plus interest due on November 1 of each succeeding year. On November 1, 2020, what is the balance of the Long-Term Notes Payable account

Answer 1

Answer:

The balance of the Long-Term Notes Payable account on November 1, 2020, is $44,320

Explanation:

The loan will be paid together with interest using the computation below;

2018

November 1, 2018 borrowed                                             $ 64,000

Add Interest payable in 2018 (5% X 64,000)                    $3,200

less 1st instalment payment                                             -$12,800

Balance in November 1, 2019                                            $54,400

Add Interest payable in 2019 (5% X 54,400)                    $2,720

less 1st instalment payment                                             -$12,800

Balance in November 1, 2020                                          $44,320

to be sure of our computation we continue to the end of loan payment

Balance in November 1, 2020                                            $44,320

Add Interest payable in 2019 (5% X $44,320)                    $2,216

less 1st instalment payment                                             -$12,800

Balance in November 1, 2021                                          $33,736

Add Interest payable in 2019 (5% X $33,736)                  $1,686.8

less 1st instalment payment                                             -$12,800

Balance in November 1, 2022                                          $22,622.8

Add Interest payable in 2019 (5% X $22,622.8)                $1,131.14

less 1st instalment payment                                             -$12,800

Balance in November 1, 2023                                         $10,953.94

Add Interest payable in 2019 (5% X $10,953.94)               $547.69

less 1st instalment payment                                             -$11,501.63

Balance in November 1, 2024                                         $0

note that the last year instalment is not up to $12,800 because the interest rate of 5% is not the correct IRR