Question

on january 1, year 1, brown co. borrowed cash from first bank by issuing a $100,000 face value, four-year term note that had an 8 percent annual interest rate. the note is to be repaid by making annual cash payments of $30,192 that include both interest and principal on december 31 of each year. brown used the proceeds from the loan to purchase land that generated rental revenues of $52,000 cash per year.

Answer 1

Amortization for the four-year period is given as

FOR 2018

Principal Balance = $100,000

cash payment for dec 31st= #30,182

Applied to interest== 8% of 100000= 0.08 x100,000=8000

Applied to Principal = cash payment -interest= 30192-8000= $22, 192

Principal balance at end of period=Principal Balance--applied to Principal

= 100,000 - 22,192=$ 77, 808

FOR 2019

Principal Balance = $77,808

cash payment for dec 31st= $30,182

Applied to interest = 8% of 77,808= 0.08 x77,808 =$6225

Applied to Principal = cash payment -interest= 30192-6225= $23,967

Principal balance at end of period=Principal Balance--applied to Principal

= 77,808 - 23,967=$ 53,841

FOR 2020

Principal Balance = $53,841

cash payment for dec 31st= $30,182

Applied to interest== 8% of 53,841= 0.08 x53,841 =$4307

Applied to Principal = cash payment -inbterst= 30192-4307= $25,885

Principal balance at end of period=Principal Balance--applied to Principal

= 53,841- 25,885= $27,956

FOR 2021

Principal Balance = $27,956

cash payment for dec 31st= $30,182

Applied to interest== 8% of 27,956= 0.08 x27,956 =$2236

Applied to Principal = cash payment -interest= 30192-2236= $27,956

Principal balance at end of period=Principal Balance--applied to Principal= 27,956- 27,956=0

In accounting, amortization refers to expensing the purchase cost minus the residual value of intangible assets in a scientific manner over their expected "useful monetary lives" on the way to replicate their consumption, expiry, and obsolescence, or different decline in cost as a result of the use or the passage of time. The time period amortization can also check with the completion of that technique, as in "the amortization of the tower was expected in 1734".

Depreciation is a corresponding idea for tangible property. Methodologies for allocating amortization to every accounting duration are normally the same as those for depreciation. but, many intangible belongings consisting of goodwill or certain manufacturers may be deemed to have an indefinite useful lifestyle and are therefore not challenged to amortization (despite the fact that goodwill is subjected to an impairment check every 12 months).

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