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 contant at $7,317. determine the decrease in notes payable that peachtree company should record in the first year.

Answer 1

The present value of the periodic payment of $7,317 is given by:


`PV= (P)/((1+r)^n) \\ \\ = (7317)/((1+0.07)^5) = (7317)/(1.07^5) \\ \\ = (7317)/(1.4026) =\$5216.92`

Therefore, the decrease in notes payable that peachtree company should record in the first year is $5,216.92