Question

On January 1, Tundo Company borrowed $190,000 to purchase machinery and agreed to pay 8% interest for six years on an installment note requiring equal payments that are due on the last day of the year. What is the carrying value of the loan at the end of the first year (requires use of present value tables)

Answer 1

Answer: $164,100

Step-by-step explanation:

Based on the information given, the carrying value of the loan at the end of the first year will be calculated thus:

First, we'll calculate the annual equal installments which will be:

= $190,000 / [1 - (1 + 8%)^-6 / 8%]

= $190,000 / [1 - (1+0.08)^-6) /0.08]

=$41100.

Then, the interest epense for the first year will be:

= $190,000 × 8%

= $190000 × 0.08

= $15,200

The reduction in the principal amount with from borrowing will be:

= $41100 - $15,200

= $25,900

Therefore, the carrying value of the loan at end of first year will be:

= $190,000 - $25,900

= $164,100