Davis Corporation borrowed $50,000 on January 1, Year 1. The loan is for a 10-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal and interest. The amount of the payment for Year 1 that is repayment of principal is $3,587.

Answer the following statement true (T) or false (F)


False

Year 1 Interest expense = Principal balance on January 1 of $50,000 × 9% = $4,500
Year 1 Principal repayment = Cash payment of $7,791 ? Interest of $4,500 = $3,291

Business

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