Question

On January 1, Year 1, Zoe Company issued a $200,000, 9%, 5-year term installment loan. The loan required a $51,419 annual cash payment on December 31 of each year. Based on this information, the portion of the principal balance repaid during Year 1 was ______.

A) $0
B) $51,419
C) $148,581
D) $200,000

Answer 1

To calculate the principal repaid in the first year of Zoe Company's loan, subtract the interest of the annual payment ($18,000) from the total annual payment ($51,419) made, which equals $33,419. B) $51,419

Step-by-step explanation:

The portion of the principal balance repaid during Year 1 of Zoe Company's installment loan can be calculated by first determining the interest portion of the first annual payment, and then subtracting that interest from the total annual payment made. The company issued a $200,000, 9% five-year term installment loan with an annual cash payment of $51,419.

To find the interest for Year 1, use the formula: Interest = Principal × Interest Rate. So, the interest for the first year is $200,000 × 9% = $18,000.

From the annual payment of $51,419, when we subtract the interest ($18,000), we find that the principal repaid in Year 1 is $51,419 - $18,000 = $33,419.

Therefore, the correct answer to the question regarding the portion of the principal balance repaid during Year 1 is:

B) $33,419