Question

Required information [The following information applies to the questions displayed below.] On January 1, Year 1, Brown Co. borrowed cash from First Bank by issuing a $64,500 face value, four-year term note that had an 6 percent annual interest rate. The note is to be repaid by making annual cash payments of $18,614 that include both interest and principal on December 31 of each year. Brown used the proceeds from the loan to purchase land that generated rental revenues of $34,830 cash per year. Required a. Prepare an amortization schedule for the four-year period. (Round your answers to the nearest whole dollar amount.)

Answer 1

To prepare an amortization schedule for Brown Co.'s four-year term note, we need to calculate the interest and principal portions of each payment. The annual payment is $18,614, which includes both interest and principal. The interest portion of the first payment is ($64,500 x 0.06) = $3,870. The principal portion of the first payment is ($18,614 - $3,870) = $14,744. The remaining balance after the first payment is ($64,500 - $14,744) = $49,756.

To calculate the interest and principal portions of the second payment, we need to use the remaining balance of $49,756 as the principal amount. The interest portion of the second payment is ($49,756 x 0.06) = $2,985. The principal portion of the second payment is ($18,614 - $2,985) = $15,629. The remaining balance after the second payment is ($49,756 - $15,629) = $34,127.