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4 July, 06:30

Baker Inc. acquired equipment from the manufacturer on 10/1/2021 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $918,000 on 4/1/2022 to satisfy the obligation in full. If Baker accrued interest of $9,000 on the note in its 2021 year-end financial statements, what is its imputed annual interest rate?

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  1. 4 July, 06:52
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    4%

    Explanation:

    For number of months Interest included in $918000:

    = 10/1/21 to 4/1/22

    = 6 months

    It is given that interest for the first three months is $9,000 that is from 10/1/21 to 31/12/21.

    Therefore, the interest from 1/1/22 to 4/1/22 is also $9,000.

    The principal amount excluding interest due:

    = Amount obligated to pay - Interest for first 3 months - Interest for next 3 months

    = $918,000 - $9,000 - $9,000

    = $900,000

    Interest rate:

    = [ (Accrued interest * No. of months) : Principal amount] * 100

    = [ (9000 * 12/3) : 900000] * 100

    = 4%
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