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1 August, 08:17

On January 1, 2018, Allgood Company purchased equipment and signed a six-year mortgagenote for $186,000 at 15%. The note will be paid in equal annual installments of $49,148, beginningJanuary 1, 2019. Calculate the portion of interest expense paid on the third installment. (Roundyour answer to the nearest whole number.) A) $21,048 B) $164,752 C) $27,900 D) $49,148

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  1. 1 August, 10:54
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    The correct answer is A: interest = $21048

    Explanation:

    An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term. While each periodic payment is the same amount early in the schedule, the majority of each payment is interest; later in the schedule, the majority of each payment covers the loan's principal.

    Each payment is the same ($49,148), but the proportions of interest and capital pay changes. The interest proportion decreases from pay to pay.

    Loan = 186000

    i = 15%

    n = 6 years

    First pay:

    i=186000*0,15=27900

    amortization = 49148-27900=21248

    Second pay:

    i = (186000-21248) * 0,15=24712

    amort=49148-24712=24436

    Third pay:

    i = (164752-24436) * 0,15=21048

    amort=49148-21048=28100

    While payments progress, interest decreases and amortization increases.
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