On January 1, 2014, Fleming Company borrowed $160,000 cash from the First Trust Bank by issuing a five-year 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, 2014. The annual payment on the loan was $40,074.
The amount of principal repayment included in the December 31, 2014 payment is:

Question

Quizplus · Accepted Answer

To find the amount of principal repayment included in the first payment, we need to calculate the amount of interest paid first. 
Interest for the first year = Principal x Rate x Time = $160,000 x 8% x 1 = $12,800
Subtracting the interest from the annual payment, we get the amount of principal paid:
Principal paid = Annual payment - Interest = $40,074 - $12,800 = $27,274. 
Therefore, the correct answer is A) $27,274.

On January 1, 2014, Fleming Company Borrowed $160,000 Cash from the First