Question

On October 1, 20X1, a company purchased a piece of land by agreeing to pay the seller $450,000 in two years. If the company had borrowed the money from a bank to pay the seller immediately, management estimates the bank would have required interest of 9%. Calculate the amount of interest expense the company would record for its year ending December 31, 20X1 (rounded to the nearest dollar).
a. $40,500.
b. $9,289.
c. $10,125.
d. $8,522.

Answer 1

Answer:

The answer is c. $10,125.

Explanation:

interest rate = 9%

loan amount= 450000

time = 0.25years

Interest charge = 450000* 0.25 * 0.09 =$10,125.

The interest  charge will be $10,125 because the loan was taken in October and the financial year  ends in December, which makes it 3 months which is 0.25 years.