On January 1, a Company Borrowed $70,000 Cash by Signing

question 10

Essay

On January 1, a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 equal year-end payments of $21,607. The amount borrowed is $70,000 and 4 years of interest at 9% equals $25,200, for a total of $95,200, yet the total payments on the note amount to only $86,428. Explain.

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Definitions:

Consumer Price Index

An assessment method that evaluates the overall weighted price of a variety of consumer services and goods, like food, transportation, and healthcare, aimed at measuring the rate of inflation.

Quart of Milk

A unit of liquid measurement commonly used in the United States, equivalent to approximately 0.946 liters of milk.

T-shirt

A T-shirt is a casual piece of clothing, typically made of cotton fabric, characterized by its T shape formed by the body and sleeves.

Consumer Price Index

A tool that analyzes the combined weighted price of a mix of consumer products and services, including medical care, transportation, and food, used for calculating inflation rates.