A monthly equipment loan payment is $4,260, including $690 of interest. What principal reduction should be recorded?
Correct Answer
D) $3,570
Principal reduction equals the payment less the interest portion.
Why This Is the Correct Answer
Principal reduction equals the payment less the interest portion.
Why the Other Options Are Wrong
Option A: $2,880
$2,880 is below the supported result for loan principal reduction; it likely uses the wrong base, period, or account bucket.
Option B: $3,240
$3,240 is below the supported result for loan principal reduction; it likely uses the wrong base, period, or account bucket.
Option C: $3,450
$3,450 is below the supported result for loan principal reduction; it likely uses the wrong base, period, or account bucket.
Memory Technique
Loan Principal Reduction drawer for Office Accountant: label payment before counting dollars.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section Two, Equipment Records, Equipment Financing and Records; use the job ledger figures in the stem and recompute the same accounting measure.
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