In the case of installment notes, interest expense is calculated as a constant percentage of the carrying value.Group startsTrue or False

Break Down the Problem

1. Identify the concept of installment notes and how interest expense is calculated.
2. Determine whether the statement provided is accurate based on financial principles.

Relevant Concepts

1. Installment notes are loans that require periodic payments of both principal and interest.
2. Interest expense on such notes is typically calculated as a constant percentage of the remaining balance or carrying value of the note.

Analysis and Detail

1. In the case of installment notes, as payments are made, the carrying value decreases.
2. This means that if interest is calculated as a constant percentage of the carrying value, the amount of interest expense will decrease over time as the principal is paid down.

Verify and Summarize

• The statement claims that interest expense is calculated as a constant percentage of the carrying value, which is indeed correct for installment notes. However, the total dollar amount of interest paid will decrease over time as the principal is amortized.

Final Answer

True. Interest expense for installment notes is calculated as a constant percentage of the carrying value.