Question

During the current year, Katie Corp. pays $5,120 on an installment note. The outstanding loan balance at the beginning of the year was $50,000; the effective interest rate is 8%. Which of the statements regarding the installment note balance at the end of the current year is correct?
$48,880
$58,880
$68,980

Answer 1

Answer:

$48,880

Explanation:

beginning principal $50,000

installment payment $5,120

effective interest rate 8%

since you first pay interest and then principal, we must calculate the amount of interest paid = $50,000 x 8% = $4,000

now we subtract the interest paid from the total payment = $5,120 - $4,000 = $1,120

so the principal was reduced by $1,120, that means that the new balance = $50,000 - $1,120 = $48,880