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Temple amortization of debt; Metro interest payable;

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1.
Temple Corporation purchased a piece of real estate, paying $400,000 cash and financing $700,000 of the purchase price with a 10-year, 15% installment note. The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year. In this situation:

A) The portion of each payment representing interest expense will increase over the 10-year period, since principal is being paid off, yet the payment amount does not decrease.
B) The aggregate amount of the monthly payments is $700,000.
C) Each monthly payment is greater than the amount of interest accruing each month.
D) The portion of each monthly payment representing repayment of principal remains the same throughout the 10-year period.

2.
On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)

A) Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
B) Debit Interest Expense $550 and credit Interest Payable $550.
C) Debit Interest Expense $550 and credit Notes Payable $550.
D) Debit Interest Expense $550 and credit Cash $550.

3.
On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. How much must Noble pay South Bank on May 1, Year 2, when the note matures?

A) $80,000.
B) $84,800.
C) $89,600.
D) $82,400.

4.
Refer to question 3 information. How much interest expense will Noble recognize on this note in Year 2?

A) $3,200.
B) $2,400.
C) $4,800.
D) $9,600.

5.
Refer to question 3 information. At December 31, Year 1, the adjusting entry with respect to this note includes a:

A) Credit to Notes Payable for $1,600.
B) Credit to Interest Payable for $1,600.
C) Debit to Interest Expense for $3,200.
D) Credit to Cash for $3,200.

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Solution Summary

The solution computes amortization of debt, interest payable, total interest and adjusting entry.

Solution Preview

Ans 1 C) Each monthly payment is greater than the amount of interest accruing each month.

Ans 2 The correct answer is 'b'. Interest expenses = ...

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