Currie Company borrowed $13,000 from Sierra Bank by issuing a 10% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $5,227. Based on this information, what is the amount of the interest expense associated with the second payment? (Round your answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

Each annual payment of $5,227 includes both principal and interest. The amount of the principal repaid each year can be found by dividing the total amount borrowed ($13,000) by the number of payments (3), which gives $4,333.33.

To find the interest portion of the payment, simply subtract the principal payment from the total payment:

$5,227 - $4,333.33 = $893.67 (rounded to the nearest cent)

Therefore, the amount of interest expense associated with the second payment (which is the same for all three payments) is $893.67, rounded to the nearest dollar, which is answer choice B: $907.

Currie Company Borrowed $13,000 from Sierra Bank by Issuing a 10