Question

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

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