Davis Corporation borrowed $50,000 on January 1,Year 1.The loan is for a 10-year period and has an annual interest rate of 9%.At the end of each year,Davis will make a payment of $7,791,which includes both principal and interest.The amount of the payment for Year 1 that is repayment of principal is $3,587.

Question

Quizplus · Accepted Answer

Year 1 Interest expense = Principal balance on January 1 of $50,000 × 9% = $4,500
Year 1 Principal repayment = Cash payment of $7,791 - Interest of $4,500 = $3,291

Davis Corporation Borrowed $50,000 on January 1,Year 1