The Platte Corporation issues a 5-year note payable on January 1, Year 1 for $5,000. The interest rate is 5% and the annual payment of $1,156, due each December 31, includes both interest and principal.Which of the following shows the effect of the December 31, Year 1 payment?

Question

Quizplus · Accepted Answer

Option B shows that the company pays $1,156, out of which $250 is interest expense (5% of $5,000), and the remaining $906 is principal repayment. The note payable balance after the payment is $4,094 ($5,000 - $906).

The Platte Corporation Issues a 5-Year Note Payable on January