Ron Maxwell, the director of two acclaimed Civil War movies, has not repaid a $300,000 loan from 2002 to Washington County Maryland and county officials aren’t happy with the pace of his repayments. The loan, which came with a 4.5 percent annual interest rate, was supposed to be paid off in 2010. However, the Herald-Mail newspaper of Hagerstown, Maryland reports that Maxwell still owes $263,041 in total. Furthermore, Maxwell hasn’t made a payment on the loan since June 2008, county officials told the paper.

Questions:

1. Based on the article, how much interest would Maxwell owe if he paid off the loan by December 31, 2011, assuming that he last paid on the loan on June 1, 2008?

2. Using the information in question 1, assume that Maxwell completely pays off the debt on December 31, 2011.  What journal entry would he make for his production company?

3. How much principal has Maxwell paid on the loan, based on the information in the article?  Based on your answer, how much has he paid annually toward principal, assuming a straight-line basis?

4. Compare your answer in Question 3 to an estimate of what you think he has made on the films since their release. If you were his accountant, does it seem reasonable that he has not paid the loan back yet?  Explain whether this will help or hinder his lawyers’ positions. What do you believe the outcome will be?

5. Do you think the loan is accounted for using the straight-line or effective interest rate method? Why?

Source:

Staff. (2011). Film Director owes Washington Co. Hundreds of Thousands, NBC News, Oct. 15 (Retrievable online at http://www.nbcwashington.com/news/local/131920608.html)

YouTube.com Video. Gettysburg And Gods and Generals Trailer. (Retrievable online at http://youtu.be/WFLH6wwGbdE)