On January 1, Alicia Company borrowed $25,000 cash by signing an 8 year, 7% mortgage note that requires equal total payments of $4,187 on December 31 of each year.
The balance in the Note Payable account after the first payment is made is:

Question

Quizplus · Accepted Answer

The first payment of $4,187 includes both interest and principal repayment. The interest for the first year is $1,750 (7% of $25,000). Therefore, the principal repayment is $4,187 - $1,750 = $2,437. The new balance is $25,000 - $2,437 = $22,563.

On January 1, Alicia Company Borrowed $25,000 Cash by Signing