Use the following to answer questions 25-28 On January 1, year 1, The Company bo

Question

Use the following to answer questions 25-28 On January 1, year 1, The Company borrows $30,000 to purchase a new vehicle by agreeing to a 4%, 5-year note with the bank. Payments of $552.50 are due at the end of each month with the first installment due on January 31, year 1. ROUND YOUR ANSWERS TO THE NEAREST CENT 25. After the first car payment (installment) is made the amount owed on the vehicle would be: S 26. Determine interest expense for the second car payment $ 27. After the Company pays all of the car payments, how much do they owe at the end of the 5 years? $

Explanation / Answer

25.

Amount paid as first car payment = $552.50

Interest included in the first car payment = $30,000 x 4% x 1/12 = $100

Repayment of principal owed in first car payment = $552.50 - $100 = $452.50

Therefore,

After first car payment is made the amount owed on the vehicle = $30,000 - $452.50 = $29,547.50

26.

Interest expense for second car payment

= Amount owed after first payment x 4% x 1/12

= $29,547.50 x 4% x 1/12

= $98.49

27.

After the company pays all the car payments, at the end of the 5 years they will owe $0.

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