Question

On January 1, Year 1, the Mahoney Company borrowed $176,000 cash from Sun Bank by issuing a five-year 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan based on the present value of annuity factor would be $40,925. The amount of principal repayment included in the December 31, Year 1 payment is:

Answer 1

$26,845.

Step-by-step explanation:

Year 1 interest paid on the loan = Loan amount * Note rate = $176,000 * 8% = $14,080

Principal repaid in year 1 = Annual payment - Year 1 interest = $40,925 - $14,080 = $26,845

Therefore, the amount of principal repayment included in the December 31, Year 1 payment is $26,845.