Camp Elim obtains a $125,000,6%,five-year loan for a new camp bus on January 1,2018.What amount will be recorded for interest expense for the first payment on January 31,2018?

Question

Quizplus · Accepted Answer

To calculate the interest expense for the first payment on January 31, 2018, we need to first find the monthly interest rate.

Monthly interest rate = Annual interest rate / 12
= 6% / 12
= 0.5%

Next, we need to find the outstanding principal balance for the first payment. Since the loan was just obtained on January 1, 2018, the outstanding principal balance will be the same as the initial loan amount.

Outstanding principal balance = $125,000

Now, we can calculate the interest expense for the first payment:

Interest expense = Monthly interest rate x Outstanding principal balance
= 0.5% x $125,000
= $625

Therefore, the answer is A) $625.

Camp Elim Obtains a $125,000,6%,five-Year Loan for a New Camp