On January 1, Year 1, Mahoney Company borrowed $182,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $45,583. What is the amount of principal repayment included in the payment made on December 31, Year 1?

Question

Quizplus · Accepted Answer

The annual payment of $45,583 includes both interest and principal repayment. To determine the amount of principal repayment included in the first payment on December 31, Year 1, we need to calculate the interest portion of the payment first. The interest on the loan for the first year is $182,000 x 8% = $14,560. Therefore, the remaining amount of the first payment that goes towards principal repayment is $45,583 - $14,560 = $31,023.

On January 1, Year 1, Mahoney Company Borrowed $182,000 Cash