Cavanaugh Company borrowed $10,000 from the Big Apple Bank by issuing a 10% three-year note. Cavanaugh agreed to repay the principal and interest by making annual payments in the amount of $4,021. Based on this information, the amount of the interest expense associated with the second payment would be: (round your answer to the nearest dollar)

Question

Quizplus · Accepted Answer

Interest expense in year 1: $10,000 x 10% = $1,000; Principal reduction in year 1: $4,021 - $1,000 = $3,021; Principal balance at beginning of year 2: $10,000 - $3,021 = $6,979; Interest expense in year 2: $6,979 x 10% = $697.90.

Cavanaugh Company Borrowed $10,000 from the Big Apple Bank by Issuing