On 1 July 2013, Avery Services Issued a 4% Long-

Multiple Choice

On 1 July 2013, Avery Services issued a 4% long- term note payable for $10 000. It is payable over a 5- year term in $2 000 principal instalments on 1 July of each year. Each yearly instalment will include both principal repayment of $2 000 and interest payment for the preceding one- year period. What happens on 1 July 2014?

A) Avery pays out $400 of interest plus $2 000 of principal.
B) Avery pays out the $200 of interest that was accrued at year- end.
C) Avery pays out $400 of interest only.
D) Avery pays out $2 000 of principal only.