FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Carol Garcia is seeking financing for her new business venture, the development of a local ski hill. She has found two possible sources of financing: (1) a mortgage payable and (2) a note payable. She can borrow $160,000 on January 1,2027 , from either, but the repayment terms differ. Mortgage payable details: ,$160,000 mortgage with an annual interest rate of 9%. The loan is repayable over 5 years in annual installments of $41,135, principal and interest, due each December 31 . The first payment is due December 31, 2027, and the last on December 31, 2031. Long-term note details: ,$160,000,5-year note with an annual interest rate of 7%. Annual interest is due each December 31 . The principal is due January 1, 2032. (a) Your answer is correct. Indicate the interest expense for the year ending December 31, 2027, assuming Garcia chooses (1) the mortgage payable and (2) the note payable. eTextbook and Media List of Accounts (b) Your answer is partially correct. Indicate the total cost of borrowing for each option assumed in part (a).
Transcribed Image Text:Carol Garcia is seeking financing for her new business venture, the development of a local ski hill. She has found two possible sources
of financing: (1) a mortgage payable and (2) a note payable. She can borrow $160,000 on January 1, 2027, from either, but the
repayment terms differ.
Mortgage payable details:
Long-term note details:
(a)
Your answer is correct.
$160,000 mortgage with an annual interest rate of 9%. The loan is repayable over 5 years in annual
installments of $41,135, principal and interest, due each December 31. The first payment is due
December 31, 2027, and the last on December 31, 2031.
$160,000, 5-year note with an annual interest rate of 7%. Annual interest is due each December 31.
The principal is due January 1, 2032.
Indicate the interest expense for the year ending December 31, 2027, assuming Garcia chooses (1) the mortgage payable and (2)
the note payable.
(b)
Mortgage payable
Long-term note payable
eTextbook and Media
List of Accounts
LA
SA
Interest expense
Your answer is partially correct.
14400
11200
Indicate the total cost of borrowing for each option assumed in part (a).
Mortgage payable
Cost
14400
Attempts: unlimited
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