True or False: Computing interest using the sum-of-the-digits method allocates more interest at the beginning of a loan than at the end of the loan.

True

Explanation:

To illustrate how the sum-of-the-digits method allocates interest we can use a lease example:

You are the lessor and you will lease a machine during 4 years. The lease requires 4 equal payments of $100,000 at the beginning of the year. After the lease, the asset's salvage value = $0.

The asset's current value = $300,000, so total interests received = $100,000

Using the sum-of-the-digits method, you will allocate interest as follows:

year 1 = 3/6 x $100,000 = $50,000year 2 = 2/6 x $100,000 = $33,333year 3 = 1/6 x $100,000 = $17,000

The largest portion of interests is allocated during the beginning of the loan.

I do not agree with the statement that "a worksheet is a permanent accounting record but I agree that its use is required in the accounting cycle.”

A worksheet does not form a part of the permanent accounting records but only acts as a device used by accountants to achieve the following purposes in each accounting cycle:

Planning the accounting work to be done in the current yearCarrying out computations and checking computationsPreparing unadjusted and adjusted trial balancesAdjustment of accountsEntering adjusted balances to the financial statements.

A permanent accounting record forms part of the journal or the general ledger.

Formal financial statements must still be prepared despite the fact that all the data are in the statement columns because the worksheet is not a standardized format for preparing the financial statements for the consumption of users of financial statements.  Only the professionals request worksheets as part of their going work.

Thus, a worksheet is not a part of the journal or the ledger.  It is not a permanent accounting record.  Moreover, the column statements in the worksheet are not acceptable formats for presenting financial statements.

Learn more about accounting worksheets (computer-based and paper-based) here: