Question

Vernois Company purchased a machine from Chunn Corporation on October 31, 2016. In payment for the 576,000 purchase, Vernois issued a one-year installment note to be paid in equal monthly payments of51,176 at the end of each month. The payments include interest at the rate of 12

1) 5,118
2) 5,760
3) 11,066
4) 11,520

Answer 1

The interest component of the first monthly payment for the machine purchased with a one-year installment note at a 12% annual interest rate is $5,760 (option 2).

Step-by-step explanation:

The subject question deals with finding the interest component of a monthly installment for a note payable. The given data includes a machine purchased for $576,000 with a one-year installment note at a 12% annual interest rate, payable in equal monthly payments. To calculate the interest portion of the first monthly payment, we use the formula:

Interest for the first month = Principal × Monthly Interest Rate

The principal amount initially is $576,000, and the monthly interest rate is 12% per annum, which is equivalent to 1% per month (12% divided by 12 months).

Interest for the first month = $576,000 × 0.01 = $5,760

Therefore, the interest component of the first monthly payment is $5,760. This means that the correct answer to the question is option 2) $5,760.