On January 1, 2018, Earnest Company purchased equipment and signed a sixminusyear mortgage note for $ 80 comma 000 at 15%. The note will be paid in equal annual installments of $ 21 comma 139, beginning January 1, 2019. Calculate the portion of principal paid on the third installment. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

$12,086

Explanation:

Mortgage installment payment includes the payment of interest on the outstanding balance of mortgage and Principal Payment. Principal payment is calculated by deducting the interest payment from total installment payment. Gradually the interest payment decreases as the outstanding balance of mortgage decreases and Principal payment increases.

First Payment

Installment = 21,139

Interest Payment = $80,000 x 15% = 12,000

principal Payment = $21,139 - 12000 = $9,139

Closing Balance of Mortgage = $80,000 - $9,139 = $70,861

Second Payment

Installment = 21,139

Interest Payment = $70,861 x 15% = $10,629

principal Payment = $21,139 - $10,629 = $10,510

Closing Balance of Mortgage = $70,861 - $10,510 = $60,351

Third Payment

Installment = 21,139

Interest Payment = $60,351 x 15% = $9,053

principal Payment = $21,139 - $9,053 = $12,086

Closing Balance of Mortgage = $60,351 - $12,086 = $48,265

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