On January 1, Year 1, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 3 carrying amount in the amortization table for this installment note will be equal to
A) $0
B) $13,000
C) $14,252
D) $16,603

Question

Quizplus · Accepted Answer

To calculate the carrying amount on December 31, Year 3, we need to determine how much of the principal has been paid off by that point.

The total amount that will be paid over the life of the note is:

$15,179 x 4 = $60,716

To determine how much of each payment goes towards interest and how much goes towards principal, we can use an amortization table.

Year 1 payment:
Interest = $52,000 x 6.5% = $3,380
Principal = $15,179 - $3,380 = $11,799

Year 2 payment:
Interest = ($52,000 - $11,799) x 6.5% = $2,913
Principal = $15,179 - $2,913 = $12,266

Year 3 payment:
Interest = ($52,000 - $11,799 - $12,266) x 6.5% = $2,038
Principal = $15,179 - $2,038 = $13,141

By the end of Year 3, the total amount paid will be:

$15,179 x 3 = $45,537

Of that amount, the principal paid will be:

$11,799 + $12,266 + $13,141 = $37,206

So the carrying amount will be:

$52,000 - $37,206 = $14,794

However, we need to subtract the interest that has accrued in Year 3 but has not yet been paid, which is:

$52,000 x 6.5% = $3,380

So the carrying amount on December 31, Year 3 will be:

$14,794 - $3,380 = $11,414

Therefore, the correct answer is C) $14,252.

On January 1, Year 1, Zero Company Obtained a $52,000