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25 November, 06:59

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1, 2019. Alden financed $37,908,000, and the note agreement will require $10 million in annual payments starting on December 31, 2019 and continuing for a total of four more years (final payment December 31, 2023). Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. Upon the first payment of the note on December 31, 2019, the amount of interest expense to be recorded is:

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  1. 25 November, 07:32
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    The multiple choices are:

    A. $1,000,000.

    B. $2,790,800.

    C.$3790, 800.

    D.$4,000,000

    The correct optio is C,$3790, 800.

    Explanation:

    The interest expense on the loan is usually the opening balance multiplied by the market rate interest which is 10% in this question.

    In addition, we can deduct the annual repayment in order to know the closing balance of the loan.

    Year opening bal interest expense at10% repayment closing bal.

    2019 $37,908,000 $3,790,800 $4,000,000

    The closing balance is $37,908,000 + $3,790,800-$4000,000

    The interest expense is 10% of the present value of $37.908,000 that is $ 3,790,800.00
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