On December 31, Year 1, Cardinal Company bought some new equipment that cost $25,000 and signed a Note Payable [NP] for $20,000. The remaining amount was paid in cash at the time of the purchase. The NP requires six equal semi-annual payments starting on June 30, Year 2. The principal and the interest expense related to the NP will be completely paid off on December 31, Year 4 as a result of these six equal payments. The note states an interest rate of 8% with semi-annual compounding on the payment dates. Answer the following: 1. What will be the size of each of the six semi-annual payments? $________ 2. How much Interest Expense will appear in Cardinal’s income statement for the year ended Dec. 31, Year 2? $___________ 3. What is the carrying value of the Note Payable in Cardinal’s balance sheet dated Dec. 31, Year 3? $_______
Aa.15.
On December 31, Year 1, Cardinal Company bought some new equipment that cost $25,000 and signed a Note Payable [NP] for $20,000. The remaining amount was paid in cash at the time of the purchase. The NP requires six equal semi-annual payments starting on June 30, Year 2. The principal and the interest expense related to the NP will be completely paid off on December 31, Year 4 as a result of these six equal payments. The note states an interest rate of 8% with semi-annual compounding on the payment dates.
Answer the following:
1. What will be the size of each of the six semi-annual payments? $________
2. How much Interest Expense will appear in Cardinal’s income statement for the year ended Dec. 31, Year 2? $___________
3. What is the carrying value of the Note Payable in Cardinal’s balance sheet dated Dec. 31, Year 3? $_______
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