Business College

On January 1, 2017, Ahmed Inc. loaned $316,837 to Cyrus Co. A zero-interest-bearing note (face amount, $400,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2020. The prevailing rate of interest for a loan of this type is 6%. What amount of interest expense will Cyrus recognize over the four years?

Answers

Answer 1

Answer:

the amount of interest expense for the four years is $76,041

Explanation:

The computation of the amount of interest expense for the four years is shown below:

= Loan amount × rate of interest × number of years

= $316,837 × 6% × 4 years

= $76,041

Hence, the amount of interest expense for the four years is $76,041

Related Questions

Moby Enterprises reports the following information for 2019. ($ numbers are totals for 2019, not per unit) Selling price per unit $800 Beginning and ending balances of Work in Process Inventory 0 Beginning balance of Finished Goods Inventory (50 units) $28,750 Units produced 90 Units sold 100 Direct material used (variable) $12,000 Direct labor used (variable) $28,000 Manufacturing overhead (variable) $4,550 Manufacturing overhead (fixed) $10,800 Selling and admn. expenses: sales commission (variable) $4,000 fixed $10,000 Notes: Moby uses FIFO for maintaining its finished goods inventory account. The Beginning Finished Goods Inventory balance of $28,750 consists of $24,250 in variable manufacturing costs and $4,500 of fixed manufacturing overhead. REQUIRED: Part 1. Compute the following for 2019 using absorption costing: a. Total Manufacturing Costs b. Cost-of-Goods-Manufactured c. Per unit cost of production d. Ending balance of Finished Goods Inventory (in units and dollars) e. Cost-of-goods sold f. Gross Margin g. Net Income Part 2. Identify clearly how the fixed manufacturing overhead (both that in the opening inventory and that incurred in 2019) has moved.

Answers

Answer:

Moby Enterprises

Part 1:

a. Total Manufacturing Costs:

Direct material used (variable)        $12,000

Direct labor used (variable)            $28,000

Manufacturing overhead (variable)  $4,550

Manufacturing overhead (fixed)     $10,800

Total manufacturing costs =         $55,350

b. Cost-of-Goods-Manufactured:

Total manufacturing costs  =  $55,350

c. Per unit cost of production = $55,350/90 = $615

d. Ending balance of Finished Goods Inventory (in units and dollars)

Beginning inventory of finished goods = 50

Plus units produced                                  90

Less units sold                                        (100)

Ending inventory of finished goods =     40 units

Cost of ending inventory of finished goods = $24,600 (40 * $615)

e. Cost-of-goods sold:

Beginning Finished Goods Inventory    $28,750

Cost of goods manufactured                   55,350

Less Ending Finished goods inventory (24,600)

Cost of goods sold =                             $59,500

f. Gross Margin:

Revenue ($800 * 100) = $80,000

Cost of goods sold =       (59,500)

Gross Margin =              $20,500

g. Net Income:

Gross Margin  $20,500

Less expenses (14,000)

Net income =    $6,500

Part 2. Identify clearly how the fixed manufacturing overhead (both that in the opening inventory and that incurred in 2019) has moved.

Fixed manufacturing overhead in Beginning Inventory = $4,500

= $90 per unit ($4,500/50)

Fixed manufacturing overhead in current period = $10,800

= $120 per unit ($10,800/90)

This shows that the per unit cost of fixed manufacturing overhead has increased from $90 to $120.

Explanation:

a) Data and Calculations:

Selling price per unit $800

Beginning and ending balances of Work in Process Inventory 0

Beginning balance of Finished Goods Inventory (50 units) $28,750

$24,250 in variable manufacturing costs and $4,500 of fixed manufacturing overhead

Units produced 90

Units sold 100

Ending Finished Goods Inventory = 40 units (50 + 90 = 100)

Direct material used (variable) $12,000

Direct labor used (variable) $28,000

Manufacturing overhead (variable) $4,550

Manufacturing overhead (fixed) $10,800

Selling and admin. expenses:

sales commission (variable) $4,000

fixed $10,000

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