Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Janet made an extra, one-time payment of $100 on her loan. How does this payment affect the total interest Janet will pay over the life of the loan?

It increases the total interest paid because the payment is considered a penalty.

It decreases the total interest paid because the principal is reduced earlier.

It delays the loan payoff date, increasing the total interest paid.

It has no effect on the total interest paid since only regular payments matter.

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Verified step by step guidance

Understand the concept of loan interest: Interest is calculated based on the principal amount of the loan. When the principal is reduced earlier, the interest accrued over time decreases because the interest is calculated on a smaller remaining balance.

Recognize the impact of an extra payment: An extra payment directly reduces the principal amount of the loan. This means that future interest calculations will be based on a lower principal, leading to less total interest paid over the life of the loan.

Clarify why the payment does not increase interest: The extra payment is not a penalty; it is applied to the principal, which reduces the loan balance earlier than scheduled. This does not increase the total interest paid.

Explain why the loan payoff date is not delayed: An extra payment reduces the principal, which can actually shorten the loan payoff period rather than delaying it. This is because the loan balance decreases faster than planned.

Conclude why regular payments are not the only factor: While regular payments are important, extra payments can significantly impact the total interest paid by reducing the principal earlier, which lowers the interest accrued over time.