Harris Company borrowed $800000 from Liber Bank on January 1 2016 in order to expand its mining capabilities. The five-year note required annual payments of $208349 and carried an annual interest rate of 8.5%. What is the balance in the notes payable account at December 31 2017?

Question

Quizplus · Accepted Answer

The correct answer is B. The balance in the notes payable account at December 31, 2017, is $507,372. This is because the company has made two annual payments of $208,349 each, which reduces the principal balance by $416,698. The remaining principal balance of $383,302 is then multiplied by the annual interest rate of 8.5% to arrive at the interest expense for the year of $32,580. This interest expense is then added to the principal balance to arrive at the total balance in the notes payable account of $507,372.

Harris Company Borrowed $800000 from Liber Bank on January 1