Question

Shortt & Tall, Attorneys at Law, opened their firm with $30,000 cash from investors and a $20,000 loan. During the first year of operations, the firm earned $4,000 of revenue and incurred $1,000 in operating expenses. Shortt & Tall repaid $12,000 in principal, and paid 10% interest on the balance outstanding at the end of the year.

How much money did Shortt & Tall borrow?

Answer 1

Shortt & Tall borrowed $20,000 as a loan, repaid $12,000 during the first year, and paid interest on the remaining balance.

Step-by-step explanation:

In order to determine how much money Shortt & Tall borrowed, we need to analyze the information given. The firm opened with $30,000 cash from investors and a $20,000 loan.

During the first year, they earned $4,000 of revenue and had $1,000 in operating expenses. They also repaid $12,000 in principal and paid 10% interest on the remaining balance at the end of the year.

To calculate the loan amount, we can start with the initial cash from investors and the loan. $30,000 + $20,000 = $50,000 total capital. Then we subtract the principal repayment of $12,000, which leaves us with $50,000 - $12,000 = $38,000.

This represents the outstanding loan balance at the end of the year. Finally, we can calculate the interest paid on the outstanding balance: 10% of $38,000 = $3,800.

Therefore, the amount borrowed by Shortt & Tall is $38,000.