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Dan Dayle started a business by issuing an $90,000 face-value note to First State Bank on...

Dan Dayle started a business by issuing an $90,000 face-value note to First State Bank on January 1, Year 1. The note had an 8 percent annual rate of interest and a five-year term. Payments of $22,541 are to be made each December 31 for five years.



b. What is the principal balance on January 1, Year 2?



c. What portion of the December 31, Year 2, payment is applied to interest expense and principal? (Round your answers to the nearest dollar amount.)

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Answer

Ans :                                                                                                                

b. Principal balance on January 1, Year 2 is $ 74,659                                

c. Portion applied to interest expense is $ 5,973 (Appx.) and to principal is $ 16,568
Working Note:
Sr. No Particulars Calculation Amount
a. Interest paid for the first year $ 90,000 * 8% $ 7,200
b. Principal paid for in the 1st year $ 22,541 - $ 7,200 $ 15,341
c. Principal Amount outstanding after the 1st year $ 90,000 - $ 15,341 $ 74,659
d. Interest expense for the second year $ 74,659 * 8% $ 5,972.72
e. Principal paid for in the 2nd year $ 22,541 - $ 5,972.72 $ 16,568
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ekkarill92 answered 2 years ago
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