Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in:
A)Periodic total payments that gradually decrease in amount.
B)Periodic total payments that are equal.
C)Periodic total payments that gradually increase in amount.
D)Increasing amounts of interest each period.
E)Increasing amounts of principal each period.

Question

Quizplus · Accepted Answer

When installment notes payable require periodic payments of accrued interest plus equal amounts of principal, the periodic total payments gradually decrease in amount. This is because as the amount of principal owed decreases with each payment, the interest charged on that smaller principal balance also decreases. Therefore, the total amount of each periodic payment (including both principal and interest) also decreases.

Installment Notes Payable That Require Periodic Payments of Accrued Interest