On January 1, Year 1, Platte Corporation issues a 5-year note payable 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 correctly shows the effects of the December 31, Year 2 payment (rounded to the nearest whole dollar)?

Question

Quizplus · Accepted Answer

Option A: This option is incorrect because it only records the total payment of $1,156 in interest expense, but it does not properly allocate between interest and principal.

Option B: This option is incorrect because it records the entire $1,156 payment as interest expense, which is incorrect as it includes principal repayment as well.

Option C: This option is correct because it properly separates the interest expense of $250 (5% of $5,000) from the principal repayment of $906 ($1,156 - $250).

Option D: This option is incorrect because it records too much interest expense ($1,250 instead of $250) and it does not properly allocate the remainder of the payment to principal repayment.

On January 1, Year 1, Platte Corporation Issues a 5-Year