Finney Company borrowed $1,600,000 from BankTwo on January 1, 2016 in order to expand its mining capabilities. The five-year note required annual payments of $416,698 and carried an annual interest rate of 9.5%.
What is the balance in the notes payable account at December 31, 2017 after the annual payment?
This term is used in accounting where the company shows the amount of balance to be paid to different accounts. The amount to be paid is shown into the notes payable.
Answer and Explanation:
All amounts are in USD.
Interest payment in 2016 = 1,600,000 * 9.5% = 152,000
Principal repaid in 2016 = 416698-152000 = 264,698
Interest payment in 2017 = (1,600,000-264,698)*9.5% = 126,853.69
Principal repaid in 2017 = 416698 - 126,853.69 = 289,844.31
Balance in notes payable account in December 2017 = 1,600,000 - 264,698 - 289,844.31 = 1,045,457.69
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7