Use the following to answer questions
The Platte Corporation issues a 5-year note payable on January 1,2016 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 shows the effect of the December 31,2016 payment?

Question

Use the following to answer questions 
The Platte Corporation issues a 5-year note payable on January 1,2016 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 shows the effect of the December 31,2016 payment?

Quizplus · Accepted Answer

The December 31, 2016 payment includes both interest and principal, so the cash balance decreases by $1,156. The decrease in the note payable is the amount of principal paid, which is $1,156 minus the interest portion of the payment (5% of $5,000 = $250), or $906. Therefore, the note payable decreases by $906. The interest expense for the year is $250.

Use the Following to Answer Questions