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.

Question

Business

Devon Austin

23 February, 00:19

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.

+1

Answers (1)

Know the Answer?

Rowan Greene · Answer 1

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.