Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014?
A) $1,000,000
B) $653,412
C) $834,564
D) $810,000

Question

Quizplus · Accepted Answer

The balance in the notes payable account at December 31, 2014 is $653,412. This is because the company has made two annual payments of $260,436, which reduces the principal balance by $520,872 ($260,436 x 2). The remaining principal balance is $479,128 ($1,000,000 - $520,872). The interest expense for the year 2014 is $45,757 ($479,128 x 9.5%). The total balance in the notes payable account at December 31, 2014 is $653,412 ($479,128 + $45,757).

Wolford Company Borrowed $1,000,000 from U