On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $80,000 at 15%.The mortgage will be paid in equal annual instalments of $21,139,beginning 1 January 2018.Calculate the portion of interest expense paid on the third instalment.(Round to the nearest dollar. )
A)$21,139
B)$70,861
C)$9053
D)$12,000

Question

Quizplus · Accepted Answer

Each year, the mortgage payable will be reduced by the amount of the annual installment, which is $21,139. Therefore, the remaining balance of the mortgage payable at the beginning of the third installment (1 January 2020) would be:

$80,000 - $21,139 - $21,139 = $37,722

The interest expense for the third installment, which covers one year from 1 January 2020 to 31 December 2020, can be calculated as:

$37,722 × 15% = $5,658.30

Therefore, the portion of interest expense paid on the third installment, which is the amount of interest included in the $21,139 installment, would be:

$21,139 - ($37,722 × 15%) ≈ $9,053

So, the correct answer is C ($9,053).

On 1 January 2017,Bratios Company Purchases Equipment and Signs a 6-Year