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26 March, 11:37

Currie Company borrowed $25,000 from the Sierra Bank by issuing a 10% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $10,053.

Based on this information, the amount of the interest expense associated with the second payment would be:

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  1. 26 March, 11:53
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    Interest expense associated with second payment = $1,745

    Explanation:

    1st year beginning

    Ending balance of note 25,000

    1st year end

    Cash payment 10,053

    Interest expense $25,000*10%

    =$2,500

    Principal payments

    $10,053 - $2,500

    =$7,553

    Ending balance of note

    $25,000 - $7,553

    =$17,447

    2nd year end

    Cash payment $10,023

    Interest payment

    $17,447*10%

    =$1,744.7

    Principal payment

    $10,023-$1,744.7.

    =$8,278.3

    Ending balance of note

    $17,447-$8,278.3

    =$9,168.7

    Interest expense associated with second payment = $1,745

    If interest expense is rounded to nearest cent, then interest expense associated with second payment will be $1,744.7
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