Question

On July 1, SHady resort borrowed 350,000 cash by signing a 10-year, 8.5 % installment note requiring equal payments each June 30 of 53,343. What amount of interest expense will be included in the first annual payment

Answer 1

$29,750

Step-by-step explanation:

Since the Annual Payments of $53,343 are all equal for the period of 10 years at 8.5% installment note, therefore we Simple interest formula here to calculate the interest amount;

I = Prt

P = Principal Amount = $350,000

r = Interest Rate = 8.5%

t = time = 10-year

I = Interest = 350,000 x 0.085 x 10 = 297,500

Hence, the first annual payment of interest expense will be:

= 297,500 / 10 = $29,750