Currie Company borrowed $20,000 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 $8,042.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

Year 1 Interest expense = Principal balance on January 1 of $20,000 × 10% = $2,000
Year 1 Principal repayment = Payment of $8,042 - Interest expense of $2,000 = $6,042
Principal balance at beginning of year 2 = Principal balance on January 1 of $20,000 -Principal repayment in Year 1 of $6,042 = $13,958
Year 2 Interest expense = Principal balance on January 1 of $13,958 × 10% = $1,396

Currie Company Borrowed $20,000 from Sierra Bank by Issuing a 10