Jim Murphy borrowed $30,000 on a 120-day 14% note. Jim paid $5,000 toward the note on day 95. On day 105 he paid an additional $6,000. Using the U.S. Rule, Jim's adjusted balance after the first payment is:
A)$25,000
B)$28,891.67
C)$1,108.33
D)$26,108.33
E)None of these

Question

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To find the adjusted balance using the U.S. rule, we need to split the note into two parts: the amount paid and the remainder of the note.

After the first payment of $5,000 on day 95, there are 25 days remaining on the note. Using the U.S. rule, the interest on the $30,000 note for 25 days would be:

$30,000 x 0.14 x (25/360) = $291.67

So, the amount paid towards interest is $291.67 and the amount applied to the principal is $4,708.33 ($5,000 - $291.67).

The remainder of the note is now $25,291.67 ($30,000 - $4,708.33).

On day 105, Jim pays an additional $6,000. This payment is first applied to any interest accrued since the last payment, which would be:

$25,291.67 x 0.14 x (10/360) = $183.85

So, the interest paid would be $183.85 and the rest is applied to the principal ($6,000 - $183.85 = $5,816.15).

The adjusted balance after this payment is:

$25,291.67 - $5,816.15 = $19,475.52

Therefore, the answer is D) $26,108.33, which is the original amount of the note ($30,000) minus the adjusted balance after the first payment ($19,475.52).

Jim Murphy Borrowed $30,000 on a 120-Day 14% Note