On December 31, 2018, Global Enterprise Inc. purchased a machinery for $250,000 cash and agreed to pay the balance in 36 equal installments of $125,000 at the end of each month starting on January 31, 2019. In addition, there will be a one time payment of $200,000 at the end of the last month. A note was issued for these payments. An assumed interest of 12% (APR) is implicit in the deal. Required:
1. What is the purchase price for this machinery?
2. Prepare an amortization schedule for this note.
3. How much is the interest expense for this note for 2019?
4. How much is the total liability for this note as of December 31, 2019 after the installment payment due on that date?
5. How much is the long-term portion and the current portion of this liability as of December 31, 2019? Long term / Current
Answer:1:
| Given informations: | |
| Cash Payment | $ 2,50,000.00 |
| Balance in 36 equal monthly installments: | $ 1,25,000.00 |
| Balance at the end of 36th month | $ 2,00,000.00 |
| Interest rate ( APR) annual | 12% |
| Monthly | 1% |
| Calculation of Balance in 36 equal monthly installments: | |
| Annuity
factor for 36 months (PVIFA($125000,1%,36months) |
30.11 |
|
Discounted value for equal payments and one last payment at
the end of 36th month ( as per calculation of payments in the table) |
$ 39,03,223.12 |
| Now, total purchase price : | |
| Cash payment | $ 2,50,000.00 |
| Equal
monthly payment including interest and payment at the end of 36th month |
$ 39,03,223.12 |
| Total purchase price | $ 41,53,223.12 |
Answer: The total purchase price is $41,53,223.12.
Answer 2:
The amortization schedule is:
| Amortization Schedule | ||||||
| Period | Month | Opening balance | Principal | Interest | Payment |
Closing balance (Opening balance- Principal payment) |
| Jan-19 | 1 | $ 39,03,223.12 | $ 85,967.77 | $ 39,032.23 | $ 1,25,000.00 | $ 38,17,255.35 |
| Feb-19 | 2 | $ 38,17,255.35 | $ 86,827.45 | $ 38,172.55 | $ 1,25,000.00 | $ 37,30,427.90 |
| Mar-19 | 3 | $ 37,30,427.90 | $ 87,695.72 | $ 37,304.28 | $ 1,25,000.00 | $ 36,42,732.18 |
| Apr-19 | 4 | $ 36,42,732.18 | $ 88,572.68 | $ 36,427.32 | $ 1,25,000.00 | $ 35,54,159.51 |
| May-19 | 5 | $ 35,54,159.51 | $ 89,458.40 | $ 35,541.60 | $ 1,25,000.00 | $ 34,64,701.10 |
| Jun-19 | 6 | $ 34,64,701.10 | $ 90,352.99 | $ 34,647.01 | $ 1,25,000.00 | $ 33,74,348.11 |
| Jul-19 | 7 | $ 33,74,348.11 | $ 91,256.52 | $ 33,743.48 | $ 1,25,000.00 | $ 32,83,091.59 |
| Aug-19 | 8 | $ 32,83,091.59 | $ 92,169.08 | $ 32,830.92 | $ 1,25,000.00 | $ 31,90,922.51 |
| Sep-19 | 9 | $ 31,90,922.51 | $ 93,090.77 | $ 31,909.23 | $ 1,25,000.00 | $ 30,97,831.73 |
| Oct-19 | 10 | $ 30,97,831.73 | $ 94,021.68 | $ 30,978.32 | $ 1,25,000.00 | $ 30,03,810.05 |
| Nov-19 | 11 | $ 30,03,810.05 | $ 94,961.90 | $ 30,038.10 | $ 1,25,000.00 | $ 29,08,848.15 |
| Dec-19 | 12 | $ 29,08,848.15 | $ 95,911.52 | $ 29,088.48 | $ 1,25,000.00 | $ 28,12,936.63 |
| Jan-20 | 13 | $ 28,12,936.63 | $ 96,870.63 | $ 28,129.37 | $ 1,25,000.00 | $ 27,16,066.00 |
| Feb-20 | 14 | $ 27,16,066.00 | $ 97,839.34 | $ 27,160.66 | $ 1,25,000.00 | $ 26,18,226.66 |
| Mar-20 | 15 | $ 26,18,226.66 | $ 98,817.73 | $ 26,182.27 | $ 1,25,000.00 | $ 25,19,408.93 |
| Apr-20 | 16 | $ 25,19,408.93 | $ 99,805.91 | $ 25,194.09 | $ 1,25,000.00 | $ 24,19,603.01 |
| May-20 | 17 | $ 24,19,603.01 | $ 1,00,803.97 | $ 24,196.03 | $ 1,25,000.00 | $ 23,18,799.04 |
| Jun-20 | 18 | $ 23,18,799.04 | $ 1,01,812.01 | $ 23,187.99 | $ 1,25,000.00 | $ 22,16,987.04 |
| Jul-20 | 19 | $ 22,16,987.04 | $ 1,02,830.13 | $ 22,169.87 | $ 1,25,000.00 | $ 21,14,156.91 |
| Aug-20 | 20 | $ 21,14,156.91 | $ 1,03,858.43 | $ 21,141.57 | $ 1,25,000.00 | $ 20,10,298.47 |
| Sep-20 | 21 | $ 20,10,298.47 | $ 1,04,897.02 | $ 20,102.98 | $ 1,25,000.00 | $ 19,05,401.46 |
| Oct-20 | 22 | $ 19,05,401.46 | $ 1,05,945.99 | $ 19,054.01 | $ 1,25,000.00 | $ 17,99,455.47 |
| Nov-20 | 23 | $ 17,99,455.47 | $ 1,07,005.45 | $ 17,994.55 | $ 1,25,000.00 | $ 16,92,450.03 |
| Dec-20 | 24 | $ 16,92,450.03 | $ 1,08,075.50 | $ 16,924.50 | $ 1,25,000.00 | $ 15,84,374.53 |
| Jan-21 | 25 | $ 15,84,374.53 | $ 1,09,156.25 | $ 15,843.75 | $ 1,25,000.00 | $ 14,75,218.27 |
| Feb-21 | 26 | $ 14,75,218.27 | $ 1,10,247.82 | $ 14,752.18 | $ 1,25,000.00 | $ 13,64,970.46 |
| Mar-21 | 27 | $ 13,64,970.46 | $ 1,11,350.30 | $ 13,649.70 | $ 1,25,000.00 | $ 12,53,620.16 |
| Apr-21 | 28 | $ 12,53,620.16 | $ 1,12,463.80 | $ 12,536.20 | $ 1,25,000.00 | $ 11,41,156.36 |
| May-21 | 29 | $ 11,41,156.36 | $ 1,13,588.44 | $ 11,411.56 | $ 1,25,000.00 | $ 10,27,567.93 |
| Jun-21 | 30 | $ 10,27,567.93 | $ 1,14,724.32 | $ 10,275.68 | $ 1,25,000.00 | $ 9,12,843.61 |
| Jul-21 | 31 | $ 9,12,843.61 | $ 1,15,871.56 | $ 9,128.44 | $ 1,25,000.00 | $ 7,96,972.04 |
| Aug-21 | 32 | $ 7,96,972.04 | $ 1,17,030.28 | $ 7,969.72 | $ 1,25,000.00 | $ 6,79,941.76 |
| Sep-21 | 33 | $ 6,79,941.76 | $ 1,18,200.58 | $ 6,799.42 | $ 1,25,000.00 | $ 5,61,741.18 |
| Oct-21 | 34 | $ 5,61,741.18 | $ 1,19,382.59 | $ 5,617.41 | $ 1,25,000.00 | $ 4,42,358.59 |
| Nov-21 | 35 | $ 4,42,358.59 | $ 1,20,576.41 | $ 4,423.59 | $ 1,25,000.00 | $ 3,21,782.18 |
| Dec-21 | 36 | $ 3,21,782.18 | $ 3,21,782.18 | $ 3,217.82 | $ 3,25,000.00 | $ -0.00 |
Answer 3:
The interest expense for 2019 is :
| Period | Interest |
| Jan-19 | $ 39,032.23 |
| Feb-19 | $ 38,172.55 |
| Mar-19 | $ 37,304.28 |
| Apr-19 | $ 36,427.32 |
| May-19 | $ 35,541.60 |
| Jun-19 | $ 34,647.01 |
| Jul-19 | $ 33,743.48 |
| Aug-19 | $ 32,830.92 |
| Sep-19 | $ 31,909.23 |
| Oct-19 | $ 30,978.32 |
| Nov-19 | $ 30,038.10 |
| Dec-19 | $ 29,088.48 |
| Total interest payment for 2019 | $ 4,09,713.51 |
Answer: The total interest payment for 2019 is $4,09,713.51
Answer 4:
The total liability on 31st december 2019, after the payment of installment on 31st dec 2019 is:
| $ 28,12,936.63 |
Answer 5:
The current portion of this liability on 31 st december 2019 will be maturing in 1 year i.e by 31st December, 2020 and after that will be long-term portion
| Total liability on 31st December 2019 | $ 28,12,936.63 |
| Long-term portion of liability | $ 15,84,374.53 |
| Current portion of liability | $ 12,28,562.10 |
Hence, the answer is as above.
On December 31, 2018, Global Enterprise Inc. purchased a machinery for $250,000 cash and agreed to...