Question

Peachtree Company borrows $30,000 from the local bank at 7% interest. The term of the note is five years, and the annual payments remain constant at $7,317. Determine the decrease in notes payable that Peachtree Company should record in the first year.

Answer 1

$5,217

Explanation:

Data provided;

Amount borrowed = $30,000

Interest rate = 7%

Term of note = 5 years

Annual payments = $7,317

Interest payment for the first year = Amount borrowed × Interest rate

= $30,000 × 7%

= $30,000 × 0.07

= $2,100

Hence,,

The Principal amount paid = Total amount paid - Interest

or

⇒ The Principal amount paid = $7,317 - $2,100

= $5,217

Hence,

the decrease in notes payable that Peachtree Company should record in the first year is $5,217