Question

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5) Paris Company buys a building on a plot of land for $100,000, paying $20,000 cash and signing a 20-year mortgage note for $80,000 at 6%. Monthly payments are $570. The first monthly payment was made in January, 2013. After the first payment, what is the updated principal balance? A) $79,430 B) $79,600 C) $79,830 D) $79,440

Answer 1

Points from the Given Information Particulars Cost of Land $ Less : Cash Paid $ Loan Taken $ $ 100,000 20,000 80,000 Explanation : The Mortgage is taken for $ 80,000. Payments are to be made on Monthly Basis. Interest @ 6% will be charged every Month. So, Every Month, Interest will be charged on the Balance Motgage Payable which will increase the payable balance and $ 570 will be paid which will decrease the balance. Therefore, for the First Month, Interest @ 6% p.a will be charged for the Month and $ 570 will be paid at the End of Month. Determination of the Closing Balance at the End of First Month : Opening Interest Closing Total Less : Balance Payments Balance $ 80,000 $ 400 $ 80,400 $ (570) $ 79,830 Therefore, the Updated Principal Balance at the end of First Month is $ 79,830 [Option - C].