Burlingame Co.is purchasing a new forklift to be used in its warehousing operations.Burlingame borrowed $120,000 from its bank in return for an installment note with 8% interest.Burlingame will make 6 equal annual payments of $25,958.Which of the following is correct regarding this note? A)There is a balloon payment of principal due to the lender at the end of the 6^th period. B)The payments will decrease each year as a portion of the principal is paid. C)Each payment includes both principal and interest. D)Interest expense will increase each year.

Question

Quizplus · Accepted Answer

Under an installment note,each payment is split between principal and interest so that no "balloon" payment of principal is required at maturity.Each payment consists of principal and interest.Each period the portion of the payment for interest decreases and the portion of the payment for principal increases.