Question

Pharoah Company borrowed $1470000 from U.S. Bank on January 1, 2019 in order to expand its mining capabilities. The 5-year note required annual payments of $382842 and carried an annual interest rate of 9.5%. What is the amount of expense Pharaoh must recognize on its 2020 income statement

Answer 1

$116,546.76

Step-by-step explanation:

Loan amount=$1470000

interest expense in 2019=$1470000*9.5%=$139,650

annual repayment=$382,842

Balance of the loan as the end of 2019=loan amount-annual repayment+interest expense

Balance of the loan as the end of 2019=$1470000-$382,842+$139,650

balance of the loan as of the end of 2019=$1,226,808

2020 interest expense=balance as the end of 2019*interest rate

2020 interest expense=$1,226,808 *9.5%

2020 interest expense=$116,546.76