Question

Sky Inc. acquired a piece of machinery on July 1, 2019 and gave a noninterest-bearing note in exchange for the machinery. Sky must pay $645,000 on March 31, 2020 to satisfy the obligation. If Sky accrued interest of 30,000 on its 2019 financial statements, what is the imputed annual interest rate

Answer 1

Answer: 10%

Step-by-step explanation:

Since the interest from July 1, 2019 to December 31, 2019 is given as $30,000. The interest for the remaining 3 months to March 31, 2020 will be:

= $30,000/2 = $15,000.

Total interest = $30000 + $15000

= $45000

Total amount to be paid by Sky = $645,000

Amount to be paid without interest = $645000 - $45000

= $600,000

We then calculate the interest rate for 9 months from March to December. This will be:

= ($45,000 × 100) = $600,000 × R × 3/4

= $4,500,000 = $600,000 × 0.75 × R

= $4,500,000 = $450,000 ×R

Interest rate = $4,500,000/$450,000

Interest rate = 10%

The imputed annual interest rate is 10%