learning-journal-week-6

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University of the People *

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1102

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Accounting

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Nov 24, 2024

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pdf

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Studocu is not sponsored or endorsed by any college or university Learning Journal week 6 Basic Accounting (University of the People) Studocu is not sponsored or endorsed by any college or university Learning Journal week 6 Basic Accounting (University of the People) Downloaded by Joseph Muriithi (prince.muriithi.jm@gmail.com) lOMoARcPSD|13477679

For this week, you will be computing interest and explain what you have learned in Unit 6 about borrowing money. 1. You own a farm and grow seasonal products such as pumpkins, squash, and pears. Most of your business revenues are earned during the months of October to December. The rest of your year supports the growing process, where revenues are minimal, and expenses are high. In order to cover the expenses from January to September, you consider borrowing a short-term note from a bank for $300,000. Based on this scenario, please complete the following:  Research the lending practices of a local bank.  Determine the interest rate charged for a $300,000 loan.  Determine the collateral the bank requires to secure the loan?  Determine your overall payback amount if you were to repay the loan in less than one year.  Choose either a payback with periodic payments or all at the end of the loan term, and compare the  outcomes.  After conducting your research, would you consider borrowing the money?  What positive and negative outcomes accompany borrowing the money? 2. How much did you know about interest and borrowing money before starting Unit 6? 3. What have you learned about interest and borrowing money in this unit that may help you? 4. Is there anything that you would like to improve upon in this course? Please explain. Be sure that your Learning Journal entry is a minimum of 500 words. Make sure you cite and reference your sources of information in the APA format. A business entity can borrow debts based on the estimated cash flows that it will create, based on that, the debt can be treated as good debt if the debt increases the net profit for the business entity. In this journal, I'm going to analyze how borrowing can help the business in downtime because the farm business grows seasonal products. A) I did a quick research on a personal or private loan from a local bank calls Sparbanken Rekarne. Unfortunately, the information is in Swedish, If you open the link, you will find a calculator for the monthly cost, it depends on the loan amount and the payment duration. Reference: https://www.sparbankenrekarne.se/privat/privatlan-och-krediter/privatlandirekt- ansok.html B) Loan amount = $300,000 Interest rate charged by bank = 11% C) Downloaded by Joseph Muriithi (prince.muriithi.jm@gmail.com) lOMoARcPSD|13477679

There is no collateral security required for the loan. D) EMI = [P x R x (1+R)^N]/[(1+R)^N-1] Monthly EMI = Principle / (1-(1+r)^-n / r ) Rate of interest per month (r') = 11% / 12 => 0.91% EMI => 300,000 / (1- (1+0.91)^-12 / 0.91) =>300,000 / 12.3 =>$24,390 Overall payback amount on payment of 12 months EMI =24,390 * 12 => $292,680 E) Overall payback amount if loan is paid at the end of the loan term = 300,000 + 300,000 * 11% => $333,000 The difference between the two is $40,320, if I chose to make the overall payment at the end of the loan period instead of the monthly repayment, then the business entity would be paying more by $40,320, which is not preferable. F) Yes because the interest rate is low, and acquiring a loan will only cost an additional $40,320. So, taking a loan will be helpful for the business entity to manage cash flows. G) Positive outcomes: By taking the loan, the business entity can invest in the business more to generate more income. Negative outcomes: Interest rate is an expense that the business entity will incur. 2. How much did you know about interest and borrowing money before starting Unit 6? I had little knowledge, the most thing that got my attention is the interest rate, for example, a personal loan for buying a house, I checked that and looked for the lowest interest rate. Now, I understand the dynamics of the topic and how banks are trying to drain our pockets. 3. What have you learned about interest and borrowing money in this unit that may help you? I learned the subtle differences between tangible and intangible assets as well as the identification and description of current and non-current assets and liabilities. 4. Is there anything that you would like to improve upon in this course? Please explain. No. Downloaded by Joseph Muriithi (prince.muriithi.jm@gmail.com) lOMoARcPSD|13477679

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