Question

Waterway Company borrowed $950000 from BankTwo on January 1, 2020 in order to expand its mining capabilities. The five-year note required annual payments of $257042 and carried an annual interest rate of 10%. What is the amount of interest expense Waterway must recognize on its 2021 income statement

Answer 1

$78,795.80

Step-by-step explanation:

Interest Expenses for 2020 = $950000 * 10% = $95,000

Total Payment in 2020 = $257,042

Principal Repaid = $257,042 - $95,000 = $162,042

Outstanding Principal = $950,000 - $162,042 = $787,958

Interest Expenses for 2021 = $787,958 * 10%

Interest Expenses for 2021 = $78,795.80

So, the amount of interest expense Waterway must recognize on its 2021 income statement is $78,795.80.