Question

On July 1, Shady Creek Resort borrowed $320,000 cash by signing a 10-year, 11.5% installment note requiring equal payments each June 30 of $55,480. What amount of interest expense will be included in the first annual payment

Answer 1

$36,800

Step-by-step explanation:

The total amount of interest expense included in the first annual principal

= Principal's balance × yearly interest rate

= $320,000 × 11.5%

= $36,800

The principal's balance after the first payment is

= $320,000 - $36,800

= $283,200

The interest expense included in the second payment is

$283,200 × 11.5%

= $32,568