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.

a.$1,735
b.$5,217
c.$2,100
d.$7,317

Answer 1

The correct answer to the decrease in notes payable for Peachtree Company after the first year is $5,217. This is calculated by subtracting the first year's interest ($2,100) from the total annual payment ($7,317).

Step-by-step explanation:

The student has a question about how to record the decrease in notes payable for Peachtree Company after the first year of loan payments. Peachtree Company borrows $30,000 from a local bank at 7% interest with annual payments of $7,317.

In the first year, the interest portion is $30,000 x 7% which equals $2,100. Because the total annual payment is $7,317, the remainder after the interest is paid is the principal payment. So, $7,317 - $2,100 = $5,217.

The decrease in notes payable that Peachtree Company should record in the first year is the principal amount paid, which is $5,217. This means that option b, $5,217, is the correct answer.