Question

On January 1, 2020, Ann Price loaned $187,825 to Joe Kiger. A zero-interest-bearing note (face amount, $250,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2022. The prevailing rate of interest for a loan of this type is 10%. The present value of $250,000 at 10% for three years is $187,825. What amount of interest expense should Joe Kiger recognize in 2020?a. $25,000 b. $75,000 c. $56,350 d. $18,783

Answer 1

d. $18,783

Step-by-step explanation:

Calculation to determine the amount of interest expense that Joe Kiger should recognize in 2020

Using this formula

Interest expense=Present value× Rate of Interest

Let plug in the formula

Interest expense=$187,825 × .10

Interest expense= $18,783 (Approximately)

Therefore the amount of interest expense that Joe Kiger should recognize in 2020 is $18,783