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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abdulmajeedabiodunac abdulmajeedabiodunac · Answer 1 · 2020-04-24T10:27:01+02:00

Answer:

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

PiaDeveau PiaDeveau · Answer 2 · 2021-12-21T18:26:38+01:00

Amount of interest expense to be recorded is $3,790,800

Amount financed by Aiden = $37,908,000

Annual starting payment = $10,000,000

Interest rate = 10% = 0.1

Amount of interest expense to be recorded

Amount of interest expense to be recorded = Amount financed by Aiden × Interest rate

Amount of interest expense to be recorded = $37,908,000 × 0.1

Amount of interest expense to be recorded = $3,790,800

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