Liabilities

Term loan

Dr/Cr

1/1/X1, XYZ borrowed 100,000 from a bank. It agreed to pay 8,000 annual interest and repay the principal on 12/31/X5.

1/1/X1 | 1.1.X1

 

 

Cash in bank

100,000

 

Long-term loan

 

100,000


12/31/X1 | 31.12.X1

 

 

Interest expense

8,000

 

 

Cash in bank

 

8,000


12/31/X5 | 31.12.X5

 

 

Interest expense

8,000

 

Long-term loan

100,000

 

 

Cash in bank

 

108,000


Same facts except XYZ made quarterly interest accruals.

12/31/X1 | 31.12.X1

 

 

Interest expense

2,000

 

Accrued interest

 

2,000


12/31/X5 | 31.12.X5

 

 

Long-term loan

100,000

 

Interest expense

2,000

 

Accrued interest

6,000

 

 

Cash in bank

 

108,000


Serial loan

Dr/Cr

1/1/X1, XYZ borrowed 100,000 agreeing to make 5 annual payments of 25,046.

1/1/X1 | 1.1.X1

 

 

Cash in bank

100,000

 

 

Long-term bank loan

 

100,000


12/31/X1 | 31.12.X1

 

 

Long-term bank loan

17,046

 

Interest expense

8,000

 

 

Cash in bank

 

25,046



P

Loan balance

Interest rate

Interest expense

Payment

Principal

A

B = B(B+1) - F

C

D = B x C

E

F = E - D

1

100,000

8.00%

8,000

25,046

17,046

2

82,954

8.00%

6,636

25,046

18,409

3

64,545

8.00%

5,164

25,046

19,882

4

44,663

8.00%

3,573

25,046

21,473

5

23,190

8.00%

1,855

25,046

23,190

 

 

 

 

 

100,000

 


8.00% = RATE(5,-25046,100000,0)

12/31/X5 | 31.12.X5

 

 

Long-term bank loan

23,190

 

Interest expense

1,855

 

 

Cash in bank

 

25,046


Same facts except XYZ made quarterly interest accruals.

1/31/X1 | 31.1.X1

 

 

Interest expense

2,000

 

 

Accrued interest

 

2,000


12/31/X1 | 31.12.X1

 

 

Long-term loan

17,046

 

Interest expense

2,000

 

Accrued interest

6,000

 

 

Cash in bank

 

25,046


1/31/X5 | 31.1.X5

 

 

Interest expense

464

 

 

Accrued interest

 

464


12/31/X5 | 31.12.X5

 

 

Long-term loan

23,190

 

Interest expense

464

 

Accrued interest

1,391

 

 

Cash in bank

 

25,046


Same facts except XYZ made quarterly interest accruals using an effective interest method and paid on the 1st.

3/31/X1 | 31.3.X1

 

 

Interest expense

2,245

 

Long-term loan

4,016

 

 

Accrued interest

 

2,245

 

Current portion of long-term debt

 

4,016



P

Loan balance

Interest rate

Interest expense

Payment

Principal

A

B = B(B+1) - F

C

D = B x C

E = 25,046 ÷ 4

F = E - D

1

100,000

2.245%

2,245

6,261

4,016

2

95,984

2.245%

2,155

6,261

4,006

-

-

-

-

-

-

4

87,679

2.245%

1,969

6,261

4,293

-

-

-

-

-

-

19

12,113

2.245%

272

6,261

5,989

20

6,124

2.245%

138

6,261

6,124

 

 

 

 

 

100,000

 


2.24535% = RATE(20,-6261,100000,0,0)

Note: since XYZ actually made annual loan repayments, so it could make quarterly accruals, it needed to determine this implicit quarterly rate instead of merely scaling down the annual rate: 1.943% = (1+8%)1÷4 - 1.

12/31/X1 | 31.12.X1

 

 

Interest expense

1,969

 

Long-term loan

4,293

 

 

Accrued interest

 

1,969

 

Current portion of long-term debt

 

4,293


1/1/X2 | 1.1.X2

 

 

Accrued interest

8,432

 

Current portion of long-term debt

16,614

 

 

Cash in bank

 

25,046


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