Question

Sloan Co. acquired a packaging machine from Vintage Corp on January 1, 2016. In payment for the $4,575,000 machine, Sloan Co. issued a five-year installment note to be paid in five equal payments at the end of each year. The payments include interest at the rate of 8%. How much of the second installment payment made on December 31, 2017 is for the principal (reduction of notes payable) in 2017? O 366,000 O 842,225 303,613 O 779.838

Answer 1

$ Cost of Machine Time Rate of Interest 45,75,000 5 years 8% PV of Annuity factor (8%,5) 3.99271 Annual Installments $ $ 45,75,000 /3.99271 11,45,838 Interest Amortization Table Year Installment 0 1 $ 11,45,838 $ 2 $ 11,45,838 $ Principal $ 7,79,838 $ 8,42,225 $ Balance outs. 45,75,000 37,95,162 29,52,936 3,66,000 $ 3,03,613 $ Correct Answer: b) $ 842,225

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