Currie Company borrowed $20,000 from the 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 $8,042.Based on this information,the amount of the interest expense associated with the second payment would be: (round your answer to the nearest dollar)

Question

Quizplus · Accepted Answer

The annual interest rate is 10%, so the interest expense for the first year would be $20,000 x 0.1 = $2,000. Therefore, the principal payment for the first year would be $8,042 – $2,000 = $6,042. 
The outstanding principal after the first payment would be $20,000 - $6,042 = $13,958. 
For the second payment, the interest expense would be calculated on the outstanding principal of $13,958, which is $13,958 x 0.1 = $1,396. Therefore, the second payment would consist of $1,396 in interest expense and $8,042 – $1,396 = $6,646 in principal payment. 
So, the answer is B) $1,396.

Currie Company Borrowed $20,000 from the Sierra Bank by Issuing