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On January 1, Year 1, The Palms borrowed $200,000 to purchase a warehouse by agreeing to a 8%, 5-year note with the bank. Payments of $50,091.29 are due at the end of each year. The first payment will be made on December 31, Year 1.

-How much will the company still owe on the loan at the end of Year 2? (Round your final answer to the nearest dollar. )
A)$186,727
B)$184,000
C)$129,090
D)$165,910

Question

[The following information applies to the questions displayed below.]

On January 1, Year 1, The Palms borrowed $200,000 to purchase a warehouse by agreeing to a 8%, 5-year note with the bank. Payments of $50,091.29 are due at the end of each year. The first payment will be made on December 31, Year 1.

-How much will the company still owe on the loan at the end of Year 2? (Round your final answer to the nearest dollar. )
A)$186,727
B)$184,000
C)$129,090
D)$165,910

Quizplus · Accepted Answer

Year 1 Interest expense = Principal balance on January 1 of $200,000 × 8% = $16,000
Year 1 Principal repayment = Payment of $50,091.29 - Interest expense of $16,000 = $34,091.29
Principal balance at end of Year 1 = Principal balance on January 1 of $200,000 - Principal repayment of $34,091.29 = $165,908.71
Year 2 Interest expense = Principal balance on January 1 of $165,908.71 × 8% = $13,272.6968 (rounded to $13,272.70)
Year 2 Principal repayment = Payment of $50,091.29 - Interest expense of $13,272.70 = $36,818.59
Principal balance at end of Year 2 = Principal balance on January 1 of $165,908.71 ? Principal repayment of $36,818.59 = $129,090.12 (rounded to $129,090)

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