Question
The test to differentiate current from long-term assets and liabilities is whether the payment is due within one year. Some loans have what is called
The test to differentiate current from long-term assets and liabilities is whether the payment is due within one year. Some loans have what is called balloon payment, that means from the term of the loan, only interest is paid, and at the end of the loan term, the entire principle is repaid. This kind of financing is rare because it does not reflect the depreciation of assets, but it sometimes occurs if there is an excess of assets to secure the loan. Imagine that a company has a loan for $25 million. What is the interest and the 'current liability of the loan' in year one for three different loan types? Assume the interest rates for these loans are 8% annually. (1)a five-year term with straight-line repayment of principal (2)a loan with principal recovered by a full balloon payment at the end of year five, and (3)a loan with a leveled (mortgage) type annual repayment with a 20-year term and 8% interest
Fill in the table below. (Results should be integer number)
Loan | Interest of year 1($) | Current liability of the loan($) |
(1) | $Answer | $Answer |
(2) | $Answer | $Answer |
(3) | $Answer | $Answer |
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