Question

9. (LO 5) AP Zhang Inc. issues a $497,000, 3-year, 7% instalment note payable on January 1. The note will be paid in three annual blended payments of $189,383 each. What is the amount of interest expense that should be recognized by Zhang in the second year?

1. $21,533
2. $23,193
3. $23,968
4. $34,790

10. (LO 5) AP Assume that the note issued by Zhang Inc. in question 9 above will be paid with fixed principal payments of $165,667 each. What is the amount of interest expense that should be recognized by Zhang in the second year?

1. $25,628
2. $23,193
3. $11,596
4. $34,790

Answer 1

Question 9: 0/s Bal at Installment Closing Year Interest Principal beginning Amount Balance 1 $ 497,000 $ 189,383 $ 34,790 $ 154,593 $342,407 2 $ 342,407 $ 189,383 $ 23,968 $ 165,415 $176,992 3 $ 176,992 $ 189,383 $ 12,391 $ 176,992 $ #Interest = 0/s Balance at Beginning * 7%. Principal = Installment Amount - Interest Closing Balance =0/s Bal at Beginning - Principal The interest expense for Year 2 is recorded as $ 23,968 ANSWER IS OPTION C

Question 10: 0/s Bal at Fixed Installment Closing Year Interest beginning Principal Amount Balance 1 $ 497,000 $ 165,667 $ 34,790 $ 200,457 $331,333 2 $ 331,333 $ 165,667 $ 23,193 $ 188,860 $ 165,667 3 $ 165,667 $ 165,667 $ 11,597 $ 177,264 $ # Interest =0/s Balance at Beginning * 7%. Installment Amount = Fixed Principal + Interest Closing Balance =0/s Bal at Beginning - Principal The interest expense for Year 2 is recorded as $ 23,193 ANSWER IS OPTION B