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Currie Company borrowed $24,000 from the Sierra Bank by issuing a 9% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $9,482. Based on this information, the amount of the interest expense associated with the second payment would be: (Round your answer to the nearest dollar.)

Answer :

Edufirst

Answer:

       [tex]\karge\boxed{\large\boxed{\$ 1,501}}[/tex]

Explanation:

The interest of the first year is 9% of the amount borrowed. Thi is:

            [tex]Interest=9\% \times \$ 24,000=\$ 2,160[/tex]

Hence, amount of principal paid is:

          [tex]\text{Principal payment}=\$9,482-\$ 2,160=\$ 7,322[/tex]

The interest expense of the second year is calculated over the principal balance:

           [tex]\text{Principal balance}=\$ 24,000-\$ 7,322=\$ 16,678[/tex]

           [tex]Interest=9\% \times \$ 16,678=\$ 1,501.02\approx \$ 1,501[/tex]

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