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

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

As the months progress on an amortized loan, which of the following statements is true regarding the composition of each monthly payment?

The portion of the payment applied to interest increases, while the portion applied to principal decreases.

Both the interest and principal portions of the payment remain constant throughout the loan term.

The total monthly payment amount increases over time.

The portion of the payment applied to interest decreases, while the portion applied to principal increases.

Previous problemNext problem

Verified step by step guidance

Step 1: Understand the concept of an amortized loan. An amortized loan is a type of loan where the borrower makes regular payments that cover both the interest and a portion of the principal balance. Over time, the loan is paid off in full through these payments.

Step 2: Recognize how interest is calculated on an amortized loan. Interest is typically calculated based on the remaining principal balance. At the beginning of the loan term, the principal balance is higher, so the interest portion of the payment is larger.

Step 3: Analyze the composition of monthly payments. Each monthly payment is fixed in amount, but the allocation between interest and principal changes over time. As the principal balance decreases due to payments, the interest portion of the payment decreases.

Step 4: Understand the shift in payment composition. As the interest portion decreases, the portion of the payment applied to the principal increases. This is because the fixed monthly payment must cover less interest, allowing more of the payment to go toward reducing the principal.

Step 5: Conclude that over the life of an amortized loan, the portion of the payment applied to interest decreases, while the portion applied to principal increases. This is a key characteristic of amortized loans.