Question

Baker Inc. acquired equipment from the manufacturer on 10/1/11 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $918,000 on 4/1/12 to satisfy the obligation in full. If Baker accrued interest of $9,000 on the note in its 2011 year-end financial statements, what is its imputed annual interest rate?

A. 2%
B. 5%
C. 6%
D. 4%

Answer 1

D. 4%

Step-by-step explanation:

Calculation to determine what is its imputed annual interest rate

Imputed annual interest rate=(2 x $9,000)/$918,000

Imputed annual interest rate=$18,000/$918,000

Imputed annual interest rate=2% for 6 months, (Approximately) or 4% annually

Therefore its imputed annual interest rate is 4% annually