Dan Dayle started a business by issuing an $80,000 face value note to First State Bank on January 1, 2018. The note had an 8 percent annual rate of interest and a five-year term. Payments of $20,037 are to be made each December 31 for five years. Required What portion of the December 31, 2018, payment is applied to interest expense and principal

Question

Jayson

Business

25 November, 08:56

Dan Dayle started a business by issuing an $80,000 face value note to First State Bank on January 1, 2018. The note had an 8 percent annual rate of interest and a five-year term. Payments of $20,037 are to be made each December 31 for five years. Required What portion of the December 31, 2018, payment is applied to interest expense and principal

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Answers (1)

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Andy · Answer 1

Answer a.

Principal Balance, Jan. 1, 2018 = $80,000

Interest Expense = $80,000 * 8%

Interest Expense = $6,400

Annual Payment = $20,037

Principal Repaid = $20,037 - $6,400

Principal Repaid = $13,637

Answer b.

Principal Balance, Jan. 1, 2019 = Principal Balance, Jan. 1, 2018 - Principal Repaid

Principal Balance, Jan. 1, 2019 = $80,000 - $13,637

Principal Balance, Jan. 1, 2019 = $66,363

Answer c.

Principal Balance, Jan. 1, 2019 = $66,363

Interest Expense = $66,363 * 8%

Interest Expense = $5,309

Annual Payment = $20,037

Principal Repaid = $20,037 - $5,309

Principal Repaid = $14,725