How to set up an amortization table with this information: On October 1, 2024, Ryan acquired some land for $300,000. He paid a down payment of $30,000 and signed a ten-year, 7% loa... How to set up an amortization table with this information: On October 1, 2024, Ryan acquired some land for $300,000. He paid a down payment of $30,000 and signed a ten-year, 7% loan payable for the balance. Monthly blended payments of $3,135 are required on the first of each month, starting November 1. Ryan’s company follows ASPE, uses a perpetual inventory system and has an October 31st year end. Read more

Steps to Solve

1. Determine the Loan Amount
   Subtract the down payment from the purchase price of the land.
   The loan amount is calculated as:
   $$ \text{Loan Amount} = $300,000 - $30,000 = $270,000 $$

2. Calculate Monthly Interest Rate
   Convert the annual interest rate to a monthly interest rate by dividing by 12.
   The monthly interest rate is:
   $$ \text{Monthly Interest Rate} = \frac{7%}{12} = \frac{0.07}{12} = 0.0058333 $$

3. Set Up the Amortization Formula
   Utilize the loan payment formula to find the monthly payment:
   $$ P = \frac{r \times PV}{1 - (1 + r)^{-n}} $$
   where:

• ( P ) = monthly payment

• ( r ) = monthly interest rate

• ( PV ) = present value (loan amount)

• ( n ) = total number of payments (months)

  In this case:
  $$ P = \frac{0.0058333 \times 270,000}{1 - (1 + 0.0058333)^{-120}} $$

4. Calculate Monthly Payment (Blended Payment)
   Using the values calculated:
   $$ P = \frac{0.0058333 \times 270,000}{1 - (1 + 0.0058333)^{-120}} \approx $3,135 $$

5. Create the Amortization Table Format
   Structure the amortization table to include columns for:

• Payment number
• Payment date
• Beginning balance
• Payment amount
• Interest paid
• Principal paid
• Ending balance

6. Calculate Each Row of the Amortization Table
   For each payment:

• Calculate interest for the period:
  $$ \text{Interest} = \text{Beginning Balance} \times \text{Monthly Interest Rate} $$

• Calculate principal paid:
  $$ \text{Principal} = \text{Payment} - \text{Interest} $$

• Update ending balance:
  $$ \text{Ending Balance} = \text{Beginning Balance} - \text{Principal} $$

• Continue for each of the 120 months.