Rodriquez Oil and Gas borrowed ($1),000,000 from a local bank to obtain funds needed for the construction

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Rodriquez Oil and Gas borrowed \($1\),000,000 from a local bank to obtain funds needed for the construction of a new drilling rig. This "construction" loan was represented by a 2- year, 7%, promissory note, dated April 1, 20X3. Interest (only) is payable on March 31, 20X4, and again at maturity. The \($1\),000,000 principal is due on March 31, 20X5. Rodriguez repaid the promissory note on March 31, 20X5, as agreed.

On April 1, 20X5, Rodriguez secured permanent equipment financing via a \($1\),200,000, 5-year loan. This loan was at 6% per annum, and requires level quarterly payments so that the loan will be completely repaid at its maturity.

(a) Prepare journal entries for the \($1\),000,000 loan to record the loan's issuance (April 1, 20X3); accrued interest at December 31, 20X3; the interest payment on March 31, 20X4; accrued interest at December 31, 20X4; and the final payment at maturity (March 31, 20X5).

(b) Calculate the required quarterly payment for the 5-year loan.

(c) Prepare journal entries to record the 5- year loan, and its first two quarterly payments.

(d) Optional: Use an electronic spreadsheet to prepare a 20-quarter amortization schedule, showing how the loan will be fully amortized by its maturity.

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Financial Accounting

ISBN: 9781456352974

1st Edition

Authors: Dr. Larry M. Walther

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