IV Special Interest Calculations

I. Special Interest Calculations

Financing Deals

Fast Freight Truck Company offers a truck to your client for $100,000 in exchange for an installment note to be paid with 16 equal quarterly payments over 4 years at a 1% annual rate. There is a required $10,000 down payment. Your research indicates that the normal borrowing cost for the buyer is 5% annual.

Calculate the required payment

Prepare the legal (1%) amortization schedule provided by Fast Freight to your client, for the first two quarters:

Record the purchase of the truck by your client:

4. Prepare the effective interest amortization schedule for the first two quarters that reflects the actual present value of the loan:

5 Record the first quarter entry to record the first payment of principal and interest.

Suppose that your client pays off the loan right after making the second payment, record the entry.

Troubled Debt Restructuring

Ebco has an unpaid bank loan for $40,000 on January 1, 2010. The original interest rate was 7% annual. There is also $4,000 of unpaid, accrued interest. The bank agrees to have Ebco transfer a piece of land with an agreed market value of $10,000 in partial satisfaction of the loan. Ebco paid $12,000 for the land last year. The bank then agrees to 4 annual payments of $9,100 due each Dec. 31, starting Dec. 31, 2010.

Record all the entries concerning the land transfer and the restructuring on the books of Ebco on Jan. 1, 2010

Record the entry made by Ebco for the first payment on Dec. 31, 2010.

Record the entry by the bank to record the troubled debt restructuring.

IV Special Interest Calculations I. Special Interest Calculations A. Financing Deals Fast Freight Truck Company offers a truck to your client for $100,000 in exchange for an installment note to be paid with 16 equal quarterly payments over 4 years at a 1% annual rate. There is a required $10,000 down payment. Your research indicates that the normal borrowing cost for the buyer is 5% annual. 1. Calculate the required payment 2. Prepare the legal (1%) amortization schedule provided by Fast Freight to your client, for the first two quarters: 3. Record the purchase of the truck by your client: 4. Prepare the effective interest amortization schedule for the first two quarters that reflects the actual present value of the loan: 5 Record the first quarter entry to record the first payment of principal and interest. 6. Suppose that your client pays off the loan right after making the second payment, record the entry. 1 B. Troubled Debt Restructuring Ebco has an unpaid bank loan for $40,000 on January 1, 2010. The original interest rate was 7% annual. There is also $4,000 of unpaid, accrued interest. The bank agrees to have Ebco transfer a piece of land with an agreed market value of $10,000 in partial satisfaction of the loan. Ebco paid $12,000 for the land last year. The bank then agrees to 4 annual payments of $9,100 due each Dec. 31, starting Dec. 31, 2010. 1. Record all the entries concerning the land transfer and the restructuring on the books of Ebco on Jan. 1, 2010 2. Record the entry made by Ebco for the first payment on Dec. 31, 2010. 3. Record the entry by the bank to record the troubled debt restructuring. 2