Final answer:
The record of the interest payment and amortization on June 30 for a $300,000 loan at 6% interest involves calculating the monthly payment and determining the portions of payment going towards interest and principal. Increasing the payment by 1/12th can accelerate amortization and save on interest. The accounting entry involves debiting 'Interest Expense' and crediting 'Cash' while amortizing the loan.
Step-by-step explanation:
Recording Interest Payment and Amortization
On June 30, to record the interest payment and amortization of a $300,000 loan with 6% interest convertible monthly, you would first need to determine the monthly payment. The formula for the monthly payment (R) given a present value (PV) of a loan can be expressed as:
PV = R × (1 - (1 + i)^(-n)) / i
Assuming a 30-year period (n = 360 months) and a monthly interest rate (i) of 0.06/12 = 0.005, the monthly payment (R) is calculated using the formula above. After the monthly payment is determined, part of it goes towards paying the interest, and the rest goes towards reducing the principal, known as amortization.
With a larger monthly payment, say by an additional 1/12th of the usual payment, you essentially make a 13th monthly payment each year. This accelerates the loan's amortization, saving time and money over the life of the loan. Specifically, the new monthly payment would become R × (1 + 1/12), leading to a faster paydown of the principal and less interest paid over time.
To make an entry on June 30, you would debit the 'Interest Expense' for the interest portion of the payment and credit 'Cash' for the total payment. The difference, which is the principal payment, would reduce the outstanding loan amount on the balance sheet.