Question

A company decided to finance the purchase of truck. The loan agreement requires quarterly payments of $850/each for 3 years. The interest rate on the loan is 8%. No amount was due in cash at the time of signing and the first payment of $850 is due three months (one quarter) after the signing date. How much did the truck cost?

Answer 1

Answer:

The cost of the truck is:

$10,200

Explanation:

a) Data and Calculations:

Quarterly payments = $850

Rate of interest on the loan = 8%

Annual payments = $3,400 ($850*4)

Payments for the three years' duration = $10,200 ($3,400*3)

b) The truck cost of $10,200 includes the interest at 8% of the loan borrowed.  This finance charge is capitalized as part of the cost at which the truck will be reported in the accounting records of the company.