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Author: admin | Category: Calculatrice Pret Auto | Date: 19.04.2015

A balloon loan or balloon mortgage payment is a payment in which you plan to pay off your auto or mortgage loan in a big chunk after a number of small regular monthly payments.
Calculate the monthly payments, total interest, and the amount of the balloon payment for a simple loan using this Excel spreadsheet template. The spreadsheet includes an amortization and payment schedule suitable for car loans, business loans, and mortgage loans. I originally created this spreadsheet to figure out a payment schedule for a car loan or auto loan. The latest versions of the balloon loan calculator (v1.3+) take into account the fact that the regular payment and the interest are rounded to the nearest cent.
This spreadsheet can be useful as a mortgage calculator, particularly for calculating the balloon payment that is made when you sell your house after a number of years. Amortization Calculator, by Bret Whissel, An excellent web-based calculator with amortization schedule. Disclaimer: The spreadsheet and the info on this page is meant for educational purposes only. The middle portion of the chapter introduces bonds payable and related features for these financial instruments.
The chapter includes coverage of special bond accounting situations, including bonds issued between interest payment dates, bond retirements, and fair value accounting.
Purchase the 2016-2017 Edition of the Financial Accounting Textbook (Chapters 1 through 16 including problem sets) for $89.95 here. Purchase the Financial Accounting Workbook 2016-2017 Edition (Chapters 1 through 16) for $39.95 here.
Purchase the Financial Accounting Solutions Manual 2016-2017 Edition (Chapters 1 through 16) for $49.95 here. Interest on the note must be accrued each December 31, with payment following on September 30.
With the term note illustration, it is easy to calculate interest of $800 per year, and observe the $10,000 balance due at maturity. Compounding simply means that the investment is growing with accumulated interest and earning interest on previously accrued interest.
Present value is the opposite of future value, as it reveals how much a dollar to be received in the future is worth today.
Conversely, one may be interested in the present value of an annuity which reveals the current worth of a level stream of payments to be received at the end of each period.
How does one compute the payment on a typical loan that involves level periodic payments, with the final payment satisfying the remaining balance due? The five payments of $23,739.64 will exactly pay off the $100,000 loan plus all interest at a 6% annual rate. Note that some scenarios may involve payments at the beginning of each period, while other scenarios might require end-of-period payments.
As previously noted, spreadsheet software normally includes functions to help with fundamental present value, future value, and payment calculations. Note that convertible bonds will almost always be callable, enabling the company to force a bond holder to either cash out or convert. A bond payable is just a promise to pay a series of payments over time (the interest component) and a fixed amount at maturity (the face amount).
The present value factors are taken from the present value tables (annuity and lump-sum, respectively). These calculations are not only correct theoretically, but are very accurate financial tools.
One simple way to understand bonds issued at a premium is to view the accounting relative to counting money!
Another way to illustrate this problem is to note that total borrowing cost is reduced by the $8,530 premium, since less is to be repaid at maturity than was borrowed up front.
Study the following illustration, and observe that the Premium on Bonds Payable is established at $8,530, then reduced by $853 every interest date, bringing the final balance to zero at maturity. On any given financial statement date, Bonds Payable is reported on the balance sheet as a liability, along with the unamortized Premium balance (known as an “adjunct” account). The income statement for all of 20X3 would include $6,294 of interest expense ($3,147 X 2). As a result, interest expense each year is not exactly equal to the effective rate of interest (6%) that was implicit in the pricing of the bonds. Accountants have devised a more precise approach to account for bond issues called the effective-interest method.
If Schultz issues 100 of the 8%, 5-year bonds for $92,278 (when the market rate of interest is 10%), Schultz will still have to repay a total of $140,000 ($4,000 every 6 months for 5 years, plus $100,000 at maturity). Another way to consider this problem is to note that the total borrowing cost is increased by the $7,722 discount, since more is to be repaid at maturity than was borrowed initially.
Carefully study this illustration, and observe that the Discount on Bonds Payable is established at $7,722, then reduced by $772.20 on every interest date, bringing the final balance to zero at maturity. The theoretically preferable approach to recording amortization is the effective-interest method.
Interest expense is calculated as the effective-interest rate times the bond’s carrying value for each period. The initial journal entry to record the issuance of the bonds, and the final journal entry to record repayment at maturity would be identical to those demonstrated for the straight-line method. Each journal entry to record the periodic interest expense recognition would vary, and can be determined by reference to the preceding amortization table. Bonds issued between interest dates are best understood in the context of a specific example.
If these bonds had been issued at other than par, end-of-period entries would also include adjustments of interest expense for the amortization of premiums or discounts relating to elapsed periods. Early retirements of debt may occur because a company has generated sufficient cash reserves from operations, and the company wants to stop paying interest on outstanding debt. Whether the debt is being retired or refinanced in some other way, accounting rules dictate that the extinguished obligation be removed from the books. For instance, assume that Cabano Corporation is retiring $200,000 face value of its 6% bonds payable on June 30, 20X5. Then, the actual bond retirement can be recorded, with the difference between the up-to-date carrying value and the funds utilized being recorded as a loss (debit) or gain (credit). The debt to asset and debt to equity ratios are carefully monitored by investors, creditors, and analysts. Another ratio, the “times interest earned ratio,” demonstrates how many times the income of a company is capable of covering its unavoidable interest obligation. If this number is relatively small, it may signal that the company is on the verge of not generating sufficient operating results to cover its mandatory interest obligation.

A previous chapter introduced the idea of a "capital lease." Such transactions enable the lessee to acquire needed productive assets, not by outright purchase, but by leasing.
Assume that equipment with a five-year life is leased on January 1, 20X1, and the lease agreement provides for five end-of-year lease payments of $23,739.64 each.
After the initial recording, the accounting for the asset and obligation take separate paths.
To determine what that balloon payment will be, you can download the free Excel template below which calculates the regular monthly payment and balloon payment for a loan period between 1 and 360 months (30 years). Other loans may require level payments over their terms, so that the interest and principal are fully paid by the end of the loan. However, spreadsheet software and business calculators frequently include built-in routines to return appropriate values. For example, if one invests $1 at the beginning of each year at 5% per annum, after 5 years it would accumulate to $5.80. Use a table, calculator, or spreadsheet to find the present value of $1,000 to be received at the end of each year for 5 years, if the interest rate is 8% per year.
Simply stated, the payments on a loan are just the loan amount divided by the appropriate present value factor. If not, the bonds are said to be debenture bonds, meaning they do not have specific collateral but are only as good as the general faith and credit of the issuer. In the past, some bonds were coupon bonds, and those bonds literally had detachable interest coupons that could be stripped off and cashed in on specific dates. Computerized information systems now facilitate tracking bond owners, and interest payments are commonly transmitted electronically to the registered owner. Rather than the entire issue maturing at once, portions of the serial issue will mature on select dates spread over time.
Convertible bonds enable the holder to exchange the bond for a predefined number of shares of corporate stock. First, investors may prefer these securities and are usually willing to accept lower interest rates than must be paid on bonds that are not convertible. Callable bonds provide a company with the option of buying back the debt at a prearranged price before its scheduled maturity.
For example, suppose a company is in financial distress and issues high interest rate debt (known as junk bonds) to investors who are willing to take a chance to bail out the company. The company will reserve this call privilege because they will want to stop paying interest (by forcing the holder out of the debt) once the stock has gone up enough to know that a conversion is inevitable.
Take time to verify the factors by reference to the appropriate tables, spreadsheet, or calculator routine.
If Schultz issues 100 of the 8%, 5-year bonds when the market rate of interest is only 6%, then the cash received is $108,530 (see the previous calculations).
This $31,470 must be expensed over the life of the bond; uniformly spreading the $31,470 over 10 six-month periods produces periodic interest expense of $3,147 (not to be confused with the actual periodic cash payment of $4,000). Therefore, the $4,000 periodic interest payment is reduced by $853 of premium amortization each period ($8,530 premium amortized on a straight-line basis over the 10 periods), also producing the periodic interest expense of $3,147 ($4,000 - $853). Notice that the premium on bonds payable is carried in a separate account (unlike accounting for investments in bonds covered in a prior chapter, where the premium was simply included with the Investment in Bonds account). This method of accounting for bonds is known as the straight-line amortization method, as interest expense is recognized uniformly over the life of the bond. For 20X1, interest expense can be seen to be roughly 5.8% of the bond liability ($6,294 expense divided by beginning of year liability of $108,530). Be aware that the more theoretically correct effective-interest method is actually the required method, except in those cases where the straight-line results do not differ materially. On any given financial statement date, Bonds Payable is reported on the balance sheet as a liability, along with the unamortized Discount that is subtracted (known as a “contra” account). The straight-line approach suffers from the same limitations discussed earlier, and is acceptable only if the results are not materially different from those resulting with the effective-interest technique.
Interest expense is a constant percentage of the bond’s carrying value, rather than an equal dollar amount each year. The amount of amortization is the difference between the cash paid for interest and the calculated amount of bond interest expense. However, each journal entry to record the periodic interest expense recognition would vary and can be determined by reference to the preceding amortization table.
The difference between the old debt’s net carrying value and the amounts used for the payoff should be recognized as a gain or loss.
Notice that Cabano’s loss relates to the fact that it took more cash to pay off the debt than was the debt’s carrying value of $194,200 ($200,000 minus $5,800). Remember that the value of a bond is a function of the bond’s stated rate of interest in relation to the going market rate of interest.
One form of analysis is ratio analysis where certain key metrics are evaluated against one another. The ratios are often seen as signs of financial strength when “small,” or signs of vulnerability when “large.” Of course, small and large are relative terms. While ratio analysis is an important part of evaluating a company’s financial health, one should be careful to not place undue reliance on any single evaluative measure.
For example, a company may agree to buy a certain quantity of supplies from another company, agree to make periodic payments under a lease for many years to come, or agree to deliver products at fixed prices in the future. First, footnote disclosures are generally required for the aggregate amount of committed payments that must be made in the future (with a year by year breakdown). At the time the lease was initiated, the lessee’s incremental borrowing rate (the interest rate the lessee would have incurred on similar debt financing) is assumed to be 6%.
This strategy would be applied for each successive payment, until the final payment extinguishes the Obligation Under Capital Lease account. Mainly because I didn't have the cash in hand to pay for the car in one lump sum, but I knew that I would after 6 months (because after 10 years of being a student, I was finally going to have a job). Please consult your financial advisor or lending institution before making any final financial decisions. This can be painstakingly calculated by summing the future value amount associated with each individual payment, as shown in the following calculations.
Registered bonds are in contrast to bearer bonds, where the holder of the physical bond instrument is deemed to be the owner (bearer bonds are rare in today’s economy).
In the context of bonds, a sinking fund is a required account into which monies are periodically transferred to insure that funds will be available at maturity to satisfy the bond obligation.
The holder may plan to be paid the interest plus face amount of the bond, but if the company’s stock explodes upward in value, the holder may benefit by trading the bonds for appreciated stock. Another factor is that the company may contemplate its stock going up; by initially borrowing money and later exchanging the debt for stock, the company may actually get more money for its stock than it would have had it issued the stock on the earlier date. If interest rates go down, the company may not want to be saddled with the higher cost obligations and can escape the obligation by calling the debt.

If the company is able to manage a turn-around, the investors who took the risk and bought the bonds don’t want to have their “high yield” stripped away with an early payoff before scheduled maturity. Nonrefundable bonds can be paid off early, so long as the payoff money is generated from business operations rather than an alternative borrowing arrangement. To determine the amount an investor will pay for a bond, therefore, requires present value computations to determine the current worth of the future payments.
The periodic interest is an annuity with a 10-period duration, while the maturity value is a lump-sum payment at the end of the tenth period.
The present value factors are multiplied by the payment amounts, and the sum of the present value of the components would equal the price of the bond under each of the three scenarios. Schultz will have to repay a total of $140,000 ($4,000 every 6 months for 5 years, plus $100,000 at maturity). For 20X4, interest expense is roughly 6.1% ($6,294 expense divided by beginning of year liability of $103,412).
Spreading the $47,722 over 10 six-month periods produces periodic interest expense of $4,772.20 (not to be confused with the periodic cash payment of $4,000).
The theoretical merit rests on the fact that the interest calculation aligns with the basis on which the bond was priced. However, despite the April 1 date, the actual issuance was slightly delayed, and the bonds were not sold until June 1. The unamortized discount on the bonds at April 30, 20X5, was $6,000, and there was a 5-year remaining life on the bonds as of that date.
If market interest rates rise, look for a market value decline (reflecting a lower present value based on the higher discount rate) and vice versa. Some industries, like the utilities, are inherently dependent on debt financing but may, nevertheless, be very healthy. There is effectively no limit or boundary on the nature of these commitments and agreements.
Second, changes in the value of such commitments may require loss recognition when a company finds itself locked into a future transaction that will have negative economic effects. The economic substance of capital leases, in sharp contrast to their legal form, is such that the lessee effectively assumes the risks and rewards of owning the asset.
The accountant would discount the stream of payments using the 6% interest rate and find that the present value of the fixed noncancelable lease payments is $100,000. The asset is typically depreciated over the lease term (or useful life, depending on a variety of conditions). The accounting outcome is virtually identical to that associated with the mortgage note illustrated earlier in the chapter.
So, to keep the monthly payments low at first, we set up a 3-year loan with the plan to pay the loan off completely after about 6 months.
While interest-only loans may look appealing due to the low monthly payment, you still have to pay off the loan eventually. These notes may evidence a “term loan,” where “interest only” is paid during the period of borrowing and the balance of the note is due at maturity.
The payment of the note is usually secured by the property, allowing the lender to take possession for nonpayment. The payments on a loan are a series of level payments that cover both the principal and interest. This table shows how each payment is applied to first satisfy the accumulated interest for the period, and then reduce the principal. The 7.32548 present value factor is reflective of 8 periods (4 quarters per year for 2 years) and 2% interest per period (8% per annum divided by 4 quarters per year). The 8% market rate of interest equates to a semiannual rate of 4%, the 6% market rate scenario equates to a 3% semiannual rate, and the 10% rate is 5% per semiannual period. Notice that interest expense is the same each year, even though the net book value of the bond (bond plus remaining premium) is declining each year due to amortization.
Further, Cabano is paying $210,000, plus accrued interest to date ($2,000), to retire the bonds; this “early call” price was stipulated in the original bond covenant. Companies are permitted, but not required, to recognize changes in value of such liabilities. On the other hand, some high-tech companies may have little or no debt but be seen as vulnerable due to their intangible assets with potentially fleeting value.
Oftentimes, such situations do not result in a presently recorded obligation, but may give rise to an obligation in the future. These observations should make it clear that an evaluation of a company should not be limited to just the numbers on the balance sheet. Use a table, spreadsheet, or business calculator to verify the 1.33823 factor for a 5-period, 6% investment.
For example, one may wish to have a target amount accumulated by a certain age, such as with a retirement account.
The present value of those payments is the amount borrowed, in essence “discounting” out the interest component. The trustee is to monitor compliance with the terms of the agreement and has a fiduciary duty to intervene to protect the investor group if the company runs afoul of its covenants.
This new balance would then be used to calculate the effective interest for the next period. Entities that opt for this approach are to report unrealized gains and losses in earnings at each reporting date, and the balance sheet will be revised to reflect the fair value of the obligation. That is, the lessee is under contract to make a stream of payments over time that substantively resembles the stream of payments that would have occurred had the lessee purchased the asset by a promissory note.
These factors help calculate the amount that must be set aside each period to reach the goal. For example, the present value of $1 invested for 5 years at 10% compounded semiannually can be determined by referring to the 5% row, 10-period factor. To be fair, Thompson will collect $2,000 from the purchasers of the bonds at the time of issue, and then return it within the $6,000 payment on September 30. One must also be careful to recognize the signals and trends that may be revealed by careful monitoring of these ratios. In the lease example, the amounts correspond to those illustrated for the mortgage note introduced earlier in the chapter.
When an asset is acquired under a capital lease, the initial recording is to establish both the asset and related obligation on the lessee's balance sheet. Having learned the financial mechanics of bonds, it is now time to examine the correct accounting.

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