Question

Currie Company borrowed $24,000 from the Sierra Bank by issuing a 9% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $9,482. Based on this information, the amount of the interest expense associated with the second payment would be: (Round your answer to the nearest dollar.)

Answer 1

`\karge\boxed{\large\boxed{\$ 1,501}}`

Step-by-step explanation:

The interest of the first year is 9% of the amount borrowed. Thi is:

`Interest=9\% * \$ 24,000=\$ 2,160`

Hence, amount of principal paid is:

`\text{Principal payment}=\$9,482-\$ 2,160=\$ 7,322`

The interest expense of the second year is calculated over the principal balance:

`\text{Principal balance}=\$ 24,000-\$ 7,322=\$ 16,678`

`Interest=9\% * \$ 16,678=\$ 1,501.02\approx \$ 1,501`