Trek Company signed a 9%, 10-year note for $150,000. The company paid $1,900 as the installment for the first month. What portion of the first monthly payment is interest expense?

Question

Quizplus · Accepted Answer

To find the interest expense portion of the first monthly payment, we need to first calculate the total interest expense for the entire 10-year period.

Total interest = principal x rate x time 
Total interest = $150,000 x 0.09 x 10 
Total interest = $135,000

We then divide the total interest by the total number of monthly payments to find the interest portion of each monthly payment.

Monthly interest expense = total interest / (number of years x 12) 
Monthly interest expense = $135,000 / (10 x 12) 
Monthly interest expense = $1,125

Therefore, the answer is D – $1,125 is the interest expense portion of the first monthly payment.

Trek Company Signed a 9%, 10-Year Note for $150,000