On January 1, 2021, Red, Inc. borrowed cash by issuing a $500,000, 5-year note that specified 6% interest to be paid on December 31 of each year and the $500,000

On January 1, 2021, Red, Inc. borrowed cash by issuing a $500,000, 5-year note that specified 6% interest to be paid on December 31 of each year and the $500,000 to be paid at maturity. If the note had instead been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2021, which of the following would be true?

A) The effective interest rate would have been higher.

B) The annual cash payment would have been less.

C) The first year's interest expense would have been higher.

D) The second year's interest expense would have been less.

Answer: D

A company issues a $200,000, 5%, six-year note on January 1, 2021. If the monthly payment is $3,220.99, what is the note's carrying value after the first month's payment is made on January 31, 2021?

A) $197,612.34

B) $200,000.00

C) $196,779.01

D) $199,166.67

Answer: A

Babble Co. signs a five-year installment note on January 1, 2021. At which of the following dates would the carrying value be the highest?

A) August 1, 2021

B) November 30, 2023

C) April 30, 2024

D) December 31, 2022

Answer: A

Babble Co. signs a five-year installment note on January 1, 2021. At which of the following dates would the carrying value be the lowest?

A) August 1, 2021

B) November 30, 2023

C) April 30, 2024

D) December 31, 2022

Answer: C

The entry to record a monthly payment on an installment note such as a car loan:

A) Increases expenses, decreases liabilities, and decreases assets.

B) Increases expenses, increases liabilities, and increases assets.

C) Increases expenses, decreases liabilities, and increases assets.

D) Increases expenses, increases liabilities, and decreases assets.

Answer: A

How does the amortization schedule for an installment note such as a car loan differ from an amortization schedule for bonds?

A) The final carrying value is not zero in either amortization schedule.

B) The final carrying value is zero in an amortization schedule for bonds.

C) The final carrying value is zero in both amortization schedules.

D) The final carrying value is zero in an amortization schedule for an installment note.

Answer: D

Which of the following describes monthly installment payments of a note payable?

A) The monthly payments equal interest expense plus the reduction of the note's carrying value.

B) The amount of interest expense recorded each month increases over time.

C) The amount of the reduction in the note's carrying value recorded each month decreases over time.

D) All of the other answer choices are correct.

Answer: A

In each succeeding payment on an installment note:

A) The amount that goes to decreasing the carrying value of the note increases.

B) The amount that goes to decreasing the carrying value of the note decreases.

C) The amount that goes to decreasing the carrying value of the note is unchanged.

D) The amounts paid for both interest and principal increase proportionately.

Answer: A

For a ten-year installment note, the portion of the periodic installment payment that represents interest in the third year is:

A) The same as in the fourth year.

B) The same as in the first year.

C) Less than in the fourth year.

D) More than in the fourth year.

Answer: D

In each succeeding payment on an installment note:

A) The amount of interest expense increases.

B) The amount of interest expense decreases.

C) The amount of interest expense is unchanged.

D) The amounts paid for both interest and principal increase proportionately.

Answer: B

Profits generated by the company are a(n):

A) Source of external financing.

B) Source of internal financing.

C) Liability.

D) Asset.

Answer: B