Collins Company borrowed $1,250,000 from BankTwo on January 1, 2016 in order to expand its mining capabilities. The five-year note required annual payments of $325,545 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2017 after the annual payment?
A)$1,250,000
B)$816,765
C)$1,043,205
D)$1,012,500

Question

Quizplus · Accepted Answer

The correct answer is B. The balance in the notes payable account at December 31, 2017 after the annual payment is $816,765.The annual payment is $325,545. The interest expense for the year is $118,765 ($1,250,000 x 9.5%). The principal payment for the year is $206,780 ($325,545 - $118,765). The balance in the notes payable account at December 31, 2017 is $1,043,205 ($1,250,000 - $206,780).

Collins Company Borrowed $1,250,000 from BankTwo on January 1, 2016