Question

On September 30, World Co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. In its December 31, balance sheet, what amount should World report as note payable?

a) $735,800
b) $750,000
c) $758,300
d) $825,800

Answer 1

c)$758,300

Step-by-step explanation:

• when you borrow money you have to pay interest which means that the borrower will end up paying more than what they borrower
• world co will end up paying $1,000,000 plus interest of 9%
• paying the amount of the loan owed reduces your balance but interest increases the balance of your loan

the interest will equal $22500 calculated as:

• $1000000×9% =$90,000 (total interest for the period)
• however the loan was taken in September 30 and paid 30 December 30(3 months)
• therefore interest up to 30 December $1,000,000×9%׳/₁₂=$22500

FINAL ANSWER:

$1,000,000-$264200+ $22500(interest for 3 months calculated above)

=$758300 to the note repayable

Answer 2

c) $758,300

Step-by-step explanation:

Amount of Loan = $1,000,000

Interest rate = 9% per year = 9% / 4 = 2.25% per quarter = 0.025

Interest amount = $1,000,000 x 2.25% = $22,500

First Quarter payment = $264,200

Principal Payment = First Quarter payment - Interest paid

Principal Payment = $264,200 - $22,500

Principal Payment = $241,700

Amount Due on December 31 = $1,000,000 - $241,270 = $758,300