Mann Co. is preparing an Excel spreadsheet for its 5-year, 6%, $400,000 installment notes. The notes were issued on January 1 for $421,236. Installment payments are payable each December 31. A portion of the spreadsheet appears as follows: What formula should Mann use in cell E8 to calculate the book value of the notes after the second interest payment?
A) =E7 - D8
B) =E7 + D8
C) =E8 + D8
D) =PV(C2,C3,0,C1,type)

Question

Mann Co. is preparing an Excel spreadsheet for its 5-year, 6%, $400,000 installment notes. The notes were issued on January 1 for $421,236. Installment payments are payable each December 31. A portion of the spreadsheet appears as follows:  What formula should Mann use in cell E8 to calculate the book value of the notes after the second interest payment?
A) =E7 - D8 
B) =E7 + D8 
C) =E8 + D8 
D) =PV(C2,C3,0,C1,type)

Quizplus · Accepted Answer

The outstanding balance declines by the excess of the installment payment over the interest expense. So, the book value of the notes at the end of the second period will be equal to their book value at the beginning of the period (E7) minus that reduction (D8).

Mann Co Is Preparing an Excel Spreadsheet for Its 5-Year, 6