Alden Trucking Company is replacing part of their fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2010.Alden financed $37,908,000,the note agreement will require $10 million in annual payments starting on December 31,2010 and continuing for a total of five years (final payment December 31,2014).Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually.How much is the 2011 interest expense?
A)$3,169,880
B)$3,290,800
C)$4,000,000
D)$2,790,800

Question

Quizplus · Accepted Answer

December 31, 2010 note payable liability ($31,698,800) = Initial debt ($37,908,000) + 2010 interest expense ($37,908,000 F1F1F1S1F1F1F10 10%) - First annual payment ($10,000,000).2011 interest expense ($3,169,880) = January 1, 2011 book value ($31,698,800) F1F1F1S1F1F1F10 10%

Alden Trucking Company Is Replacing Part of Their Fleet of Trucks