Question

In each succeeding payment on an installment note: Multiple Choice The amount that goes to interest expense increases. The amounts paid for both interest and principal increase proportionately. The amount that goes to interest expense decreases. The amount that goes to interest expense is unchanged.

Answer 1

In each succeeding payment on an installment note (C) the amount that goes to decrease the carrying value of the note increases.

What is an installment note?

• An installment note is a type of promissory note in which the principal and interest are paid in predetermined quantities, or set minimum amounts, at certain time intervals.
• The loan is amortized through periodic principal reductions.
• An installment note is a legal obligation or responsibility that compels the borrower to return the lender's principal in a series of periodic payments.
• A lump sum note or balloon loan, on the other hand, demands the borrower to return the entire note principal on a certain date.
• There is no payment schedule.

• The amount that goes to reduce the carrying value of an installment note increases with each subsequent payment.

Solution -

As it is given in the definition above that the amount that goes to reduce the carrying value of an installment note increases with each subsequent payment.

Therefore, In each succeeding payment on an installment note (C) the amount that goes to decrease the carrying value of the note increases.

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Correct question:

In each succeeding payment on an installment note:

A. The amount that goes to decreasing the carrying value of the note is unchanged.

B. The amount that goes to decrease the carrying value of the note decreases.

C. The amount that goes to decrease the carrying value of the note increases.

D. The amounts paid for both interest and principal increase proportionately.