Dan Dayle started a business by issuing an $80,000 face value note to First Stat
ID: 2551217 • Letter: D
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?
What is the principal balance on January 1, 2019?
What portion of the December 31, 2019, payment is applied to interest expense and principal? (Round your answers to the nearest dollar amount.)
a.Interest expense
Principal
b.Principal balance
c.Interest expense
Principal
Explanation / Answer
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
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