Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2019.Alden financed $37,908,000,and the note agreement will require $10 million in annual payments starting on December 31,2019 and continuing for a total of four more years (final payment December 31,2023).Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually.
- Upon the first payment of the note on December 31,2019,the amount of interest expense to be recorded is:
A)$1,000,000.
B)$2,790,800.
C)$3,790,800.
D)$4,000,000.

Question

Quizplus · Accepted Answer

The interest expense for the first year is calculated as 10% of the principal amount financed, which is $37,908,000. Therefore, the interest expense is $3,790,800.

Alden Trucking Company Is Replacing Part of Its Fleet of Trucks