Question

Straight Industries purchased a large piece of equipment from Curvy Company on January 1, 2019. Straight Industries signed a note, agreeing to pay Curvy Company $320,000 for the equipment on December 31, 2021. The market rate of interest for similar notes was 8%. The present value of $320,000 discounted at 8% for three years was $254,026. On January 1, 2019, Straight Industries recorded the purchase with a debit to equipment for $254,026 and a credit to notes payable for $254,026. On December 31, 2019, Straight recorded an adjusting entry to account for interest that had accrued on the note. Assuming no adjusting entries have been made during the year, the interest expense accrued at December 31, 2019 is closest to:________.
a. $27,493.
b. $25,403.
c. $29,693.
d. $32,000.

Answer 1

Answer:

B) $25,403.

Explanation:

note signed on January 1, 2009 ⇒ agreed to pay $320,000 on December 31,2021.

interest rate 8%

PV of the note at the moment it was issued = $254,026

the interest accrued during the first year = present value x interest rate = $254,026 x 8% = $20,322.08

since no option is even close to the right amount, but the question asks the closest one, then we should choose option B.

Answer 2

The interest expense accrued at Decemebr 31,2019 is $20,322.08.

Given that,

• Straight Industries signed a note, agreeing to pay Curvy Company $320,000 for the equipment on December 31, 2021.
• The market rate of interest for similar notes was 8%.
• The present value of $320,000 discounted at 8% for three years was $254,026.

• The calculation is as follows:

$=\ 254,026 \times 0.08$

= $20,322.08

Learn more: brainly.com/question/17429689