Question

On July 1, Shady Creek Resort borrowed $310,000 cash by signing a 10-year, 11% installment note requiring equal payments each June 30 of $52,639. What amount of interest expense will be included in the first annual payment

Answer 1

$34,100

Step-by-step explanation:

The interest on the installment note for the first year is a function of both the face value of the note and interest rate of 11%

Interest expense on the first annual payment=$310,000*11%

Interest expense on the first annual payment=$34,100

The amount principal repayment in respect of the first annual payment is the amount of payment which is $52,639 minus the interest portion of the payment.

The Principal portion of the first payment=$52,639-$34,100=$18,539