The portion of the second monthly payment made on January 31, Year 2, which represents repayment of principle is:
A) $400.
B) $404.
C) $2,400.
D) $1,996.

Question

Quizplus · Accepted Answer

The second monthly payment made on January 31, Year 2 is $1,000 (since it is one-twelfth of the annual payment of $12,000).

To calculate the portion of this payment that represents repayment of principle, we first need to find out how much of the outstanding principle balance is left after the first monthly payment.

The outstanding principle balance after the first monthly payment can be calculated as follows:

Outstanding principle balance = Original principle - (First monthly payment - Interest on outstanding balance)

= $24,000 - ($1,000 - 0.10 x $24,000)

= $24,000 - ($1,000 - $2,400)

= $24,000 - (-$1,400)

= $25,400

Now, we need to calculate the interest on this outstanding balance for the period from January 1 to January 31.

Interest on outstanding balance = 0.10/12 x $25,400 = $211

Therefore, the portion of the second monthly payment made on January 31, Year 2, which represents repayment of principle is:

$1,000 - $211 = $789

So Option B is correct.

The Portion of the Second Monthly Payment Made on January