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DochEvi [55]
3 years ago
8

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But if the rate

of inflation was expected to be 4%, the bank would most likely charge the firm an annual interest rate of rev:________________
Business
1 answer:
MAXImum [283]3 years ago
8 0

Answer:

The nominal interest rate which the bank will offer is of 10.24%

Explanation:

according to Irwin formula the bank will charge a nominal rate that ensures a real rate of 6% thus:

\frac{1+r_n}{1+ \theta} -1 =r_e

(1+r_e)(1+ \theta) -1 = r_n

1.06*1.04-1 = 0.1024 = 10.24%

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Bad debt Expense        Dr.$$

Provision for Bad debts  Cr. $$

When it is certain that customer will no longer pay the specified amount, the write off entry is made as follows

Provision for Bad Debts    Dr. $$

Accounts Receivable        Cr. $$

b)Prepaid Insurance

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Insurance Expense   Dr.$$

Prepaid Insurance    Cr.$$

c) & d) Equipment & Accumulated Depreciation

The Assets are adjusted over their useful life for depreciation. When an asset is used during whole year, its cost is reduced and that reduction is recorded as deprecation expense and accumulated depreciation.

The Adjusting Entry is made

Depreciation Expense      Dr. $$

Accumulated Depreciation  Cr. $$

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Accumulated Depreciation Dr. $$

Asset-Equipment                    Cr. $$

e)Notes Payable & f) Interest payable

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Interest Expense/Notes Expense   Dr.$$

Interest Payable or Notes Payable  Cr.$$

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When those services are actually rendered to customers, the adjusting entry is made,

Unearned Service revenue Dr. $$

Service revenue                    Cr. $$

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