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Andre45 [30]
3 years ago
6

On September 30, 2018, Corso Steel acquired a patent from Thermo Steel. The agreement specified that Corso will pay Thermo $1,00

0,000 immediately and then another $1,000,000 on September 30, 2020. An interest rate of 8% reflects the time value of money for this type of loan agreement. (PV of $1, PVA of $1) (Use appropriate factor(s) from the tables provided.) What amount of interest expense, if any, would Corso record on December 31, 2018, the company’s fiscal year end?
Business
1 answer:
Delicious77 [7]3 years ago
5 0

Answer:

$17,146

Explanation:

Given:

Acquisition cost of patent = $2,000,000. $1,000,000 is paid immediately. Remaining $1,000,000 is paid after 2 years on September 30, 2020.

We have to calculate present value of $1,000,000 @8%, 2 years. Present value factor is 0.8573.

Present value of $1,000,000 = 1,000,000×0.8573 = $857,300.

Calculation of interest expense:

Principal amount = $857,300

Rate = 0.08

Time period = \frac{3}{12}= \frac{1}{4}\

Interest expense = 857,300\times 0.08\times \frac{1}{4}

                             = $17,146

Therefore, interest expense to be recorded as on December 31, 2018 is $17,146

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