Question

Peachtree company borrows $30,000 from the local bank at 7% interest. the term of the note is five years and the annual payments remain contant at $7,317. determine the decrease in notes payable that peachtree company should record in the first year.

Answer 1

The present value of the periodic payment of $7,317 is given by:

$PV= \frac{P}{(1+r)^n} \\ \\ = \frac{7317}{(1+0.07)^5} = \frac{7317}{1.07^5} \\ \\ = \frac{7317}{1.4026} =\ 5216.92$

Therefore, the decrease in notes payable that peachtree company should record in the first year is $5,216.92