An installment note payable for a principal amount of $48,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $11,395 beginning December 31, 2011, for each of the next five years. After the final payment, the carrying amount on the note will be
A) $5,425
B) $8,975
C) $11,395
D) $0

Question

Quizplus · Accepted Answer

The sum of the payments over the 5-year period will be:

$11,395 x 5 = $56,975

This is greater than the principal amount of $48,000, so the carrying amount on the note will be $0 after the final payment. Therefore, the correct answer is D.

An Installment Note Payable for a Principal Amount of $48,000