Finney Company borrowed $800,000 from BankTwo on January 1, 2009 in order to expand its mining capabilities. The five-year note required annual payments of $208,349 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2010?

Question

Quizplus · Accepted Answer

The correct answer is B. The balance in the notes payable account at December 31, 2010 is $522,729. This is because the company has made two annual payments of $208,349 each, which reduces the principal balance by $416,698. The remaining balance of $383,302 is then subject to interest expense for the year 2010, which is $36,427 (9.5% x $383,302). This brings the total balance in the notes payable account to $522,729 ($383,302 + $36,427).

Finney Company Borrowed $800,000 from BankTwo on January 1, 2009