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Peachtree Company borrows $30,000 from the local bank at 7% interest. The term of the note is five years, and the annual payments remain constant at $7,317. Determine the interest expense Peachtree Company should record in the first year.

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Samawati

Answer:

$2,100

Explanation:

The value of the loan is $30,000

Interest rate is 7%

Annual payments are constant, indicating simple interest is being applied.

Interest expense on the first year will be

I = P x R x T

where

P is the principal amount. $30,000

R is interest rate 7 % or 0.07

T is 1 year

I = $30,000 x 0.07 x 1

I = $2,100

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