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On March 1,Hugh Corporation plans to borrow $550,000 from the Scotland State Bank by signing a 12%,15-year note payable.The note calls for 180 monthly payments of $6,000,which includes both interest and principal components.
-Of Hugh's budgeted debt service cost of $6,000 in March,the amount applied to the principal of the note totals:
A)$500.
B)$4,000.
C)$4,500.
D)$5,000.

Question

Quizplus · Accepted Answer

The interest for the first month is calculated on the initial principal amount of $550,000 at 12% annual interest, which is $550,000 * 12% / 12 = $5,500. Since the total monthly payment is $6,000, subtracting the interest portion ($5,500) from the total payment leaves $500 applied to the principal.

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