Business College

In each succeeding payment on an installment note:

a. The amount that goes to interest expense increases.
b. The amount that goes to interest expense decreases.
c. The amount that goes to interest expense is unchanged.
d. The amounts paid for both interest and principal increase proportionately.

Answers

Answer 1

Answer:

In each succeeding payment on an installment note:

b. The amount that goes to interest expense decreases.

Explanation:

With each installment settled, the principal amount will continue to reduce and as a result, the amount that will be recognized as interest expense will also decrease.  This is because the interest expense is calculated based on the principal amount, which is decreasing with each installment.  The interest expense for a previous period will not be the same for the future period.

Related Questions

Question 3
A car manufacturer notices that they can sell 11 cars at £18,200, but in order to sell 12 cars they have to
drop the price to £17,400. The marginal cost of producing the 12th car is £9,000. Which of the following
statements is correct?
a) The marginal revenue from selling the 12th car is £18,200.
b) The loss in total revenue of increasing the total number of cars sold from 11 to 12 cars is £800.
c) The marginal revenue when the output is 11 cars is £8,600.
d) The firm should increase its output to maximise its profits.

Answers

Answer:

b) The loss in total revenue of increasing the total number of cars sold from 11 to 12 cars is £800.

Explanation:

Marginal revenue is the benefit associated with the sale of one more unit, while marginal costs are the expenses incurred in producing an extra unit. To determine the marginal revenue, one has to isolate the revenue from the last item sold with revenue from the previous units.

In this case, the marginal revenue will be the price of the 12th item minus the price of the 11th item.

Marginal revenue =$17,400 -$18,200

=-$800

Marginal revenue = - $800

The statement that is correct is B. The loss in total revenue of increasing the total number of cars sold from 11 to 12 cars is £800.

Marginal revenue implies the additional revenue that's made as a result of an extra unit sold. Marginal cost is the extra cost incurred as a result of an additional unit produced.

Based on the information given, the marginal revenue will be:

= $17400 - $18200

= -$800.

Therefore, there'll be a loss of $800.

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