John Young started a business by issuing a $90,000 face value note to First State Bank on

Question:

John Young started a business by issuing a $90,000 note to First State Bank on January 1, 2013. The note had a 10 percent annual rate of interest and a five-year term. Payments of $23,742 are to be made each December 31 for five years.

Required
a. What portion of the December 31, 2013, payment is applied to
(1) Interest expense?
(2) Principal?
b. What is the principal balance on January 1, 2014?
c. What portion of the December 31, 2014, payment is applied to
(1) Interest expense?
(2) Principal?

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...