Question

A corporation issues a $750,000, 13%, 15-year mortgage note. The terms provide for annual installment payments of $102,319. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

Group of answer choices

$744,375

$652,500

$745,181

$738,075

$739,735

Answer 1

Answer:

The correct answer is Option 5 ($ 7,39,735).

Explanation:

Given data:

• Principle amount = $ 7,50,000
• Interest = 13%
• Annual installment payments = $ 1,02,319

Calculation of principle amount after 2nd annual payment:

Particulars	Amount	Amount
Principle amount		$ 7,50,000
Add: Interest of 1st year	$ 7,50,000*13% = $ 97,500	$ 97,500
Total	$ 7,50,000 + $ 97,500 = $ 8,47,500	$ 8,47,500
Less: Annual installment payment		$ 1,02,319
Principle balance of 1st year after annual payment	$ 8,47,500 - $ 1,02,319 = $ 7,45,181	$ 7,45,181
Add: Interest of 2nd year	$ 7,45,181 * 13% = $ 96,873.5	$ 96,873
Total	$ 7,45,181 + $ 96,873 = $ 8,42,054	$8,42,054
Less: Annual installment payment		$1,02,319
Principle balance of 2nd year after annual installment	$ 8,42,054 - $ 1,02,319 = $ 7,39,735	$7,39,735

Therefore, the principal balance of the mortgage payable account after the second annual payment is $ 7,39,735