Question

Currie Company borrowed $25,000 from the Sierra Bank by issuing a 10% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $10,053.

Based on this information, the amount of the interest expense associated with the second payment would be:

Answer 1

Interest expense associated with second payment = $1,745

Step-by-step explanation:

1st year beginning

Ending balance of note 25,000

1st year end

Cash payment 10,053

Interest expense $25,000×10%

=$2,500

Principal payments

$10,053 -$2,500

=$7,553

Ending balance of note

$25,000- $7,553

=$17,447

2nd year end

Cash payment $10,023

Interest payment

$17,447×10%

=$1,744.7

Principal payment

$10,023-$1,744.7.

=$8,278.3

Ending balance of note

$17,447-$8,278.3

=$9,168.7

Interest expense associated with second payment = $1,745

If interest expense is rounded to nearest cent, then interest expense associated with second payment will be $1,744.7