Scribd Logo
Upload

Welcome to Scribd!

  • 13 views

    Chapter 6 Bonus Material Amortization Schedule

    Uploaded by

    Setenay Gel
    The document discusses amortization schedules, which are used to separate interest from principal payments over time for various accounting topics. It explains that amortization schedules have columns for the date, payment amount, interest portion, principal portion, and principal balance. An example schedule is provided for a $50,000 installment sale paid back over 10 years in equal annual payments with a 15% interest rate to demonstrate how to calculate the values for each column.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd

    Chapter 6 Bonus Material Amortization Schedule

    Uploaded by

    Setenay Gel
    13 views1 page
    The document discusses amortization schedules, which are used to separate interest from principal payments over time for various accounting topics. It explains that amortization schedules have columns for the date, payment amount, interest portion, principal portion, and principal balance. An example schedule is provided for a $50,000 installment sale paid back over 10 years in equal annual payments with a 15% interest rate to demonstrate how to calculate the values for each column.

    Original Description:

    Amortization table

    Original Title

    ch6amort (1)

    Copyright

    © © All Rights Reserved

    Available Formats

    DOC, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses amortization schedules, which are used to separate interest from principal payments over time for various accounting topics. It explains that amortization schedules have columns for the date, payment amount, interest portion, principal portion, and principal balance. An example schedule is provided for a $50,000 installment sale paid back over 10 years in equal annual payments with a 15% interest rate to demonstrate how to calculate the values for each column.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    13 views1 page

    Chapter 6 Bonus Material Amortization Schedule

    Uploaded by

    Setenay Gel
    The document discusses amortization schedules, which are used to separate interest from principal payments over time for various accounting topics. It explains that amortization schedules have columns for the date, payment amount, interest portion, principal portion, and principal balance. An example schedule is provided for a $50,000 installment sale paid back over 10 years in equal annual payments with a 15% interest rate to demonstrate how to calculate the values for each column.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 1

    Chapter 6 bonus material

    Amortization schedule

    The “amortization schedule” approach to separating interest from principal payments:

    In several different accounting topics (installment sales, long-term receivables, bond accounting, lease
    accounting) we require that annuity payments be split between the principle/compounding portion and the
    interest portion of the payment.
    Why? Because the principal/compounding amount typically impacts a permanent account and the
    interest portion typically impacts a temporary account.

    How the “amortization schedule” approach works (it is always the same basic format!).You start with a
    blank table that has the following headings (this is an EXCELlent place to use your spreadsheet skills):

    Date Payment amount Interest portion Principal portion Principal balance


    (1) (2) (3) (4)

    (1) The payment amount in this schedule is almost always fixed (it is based on a contract) and doesn’t
    change over the life of the schedule.
    (2) The interest portion is calculated as: Appropriate interest rate * beginning Principal balance.
    (3) The principal portion is calculated as: Payment amount – Interest portion.
    (4) The principal balance is calculated as: beginning Principal balance – current principal portion.
    Example: let’s use an installment sale schedule as an example since that is the first topic we’ll come across
    that uses this schedule

    Suppose that you make a $50,000 installment sale in which you will receive 10 equal payments at the end
    of each year for 10 years. The appropriate interest rate has been determined to be 15%. Complete a
    schedule showing the interest and principal payments received under this sale.

    Step 1:

    Step 2: Now we can complete the schedule (The numbers correspond to the columns above):

    (1) the Payment amount is _______________ for each of the 10 years.

    (2) the interest portion for the first year is: ________________________ . This is how much interest
    income we will recognize for the first year.

    (3) the principal portion for the first year is: _________________________. This is the reduction in the
    receivable for the first year .

    (4) the new principal balance after the first payment will be : _______________.
    (Think about this - even though you received $______, most of it was interest so the principal balance
    really didn't go down much -- this is the same way your car payments or home mortgages work - even
    though you make pretty big payments, the payoff balance only decreases a tiny bit in the early months)
    (5) the interest portion for the second year is: YOU FIGURE IT OUT

    Over the life of the schedule, the principal balance will go to –0-. Try a few lines. (Look at the completed
    schedule in Chapter ___ to see if you did it correctly!)

    You might also like