Question

On January 1, 2019, Fleming Company borrowed $50,000 cash from First American Bank by issuing a one year 6% note. The principal and interest will be repaid by making one annual payment on December 31, 2019. The amount of the payment to the bank on December 31, 2019 for the principal and interest is:

Group of answer choices

$50,000

$80,000

$53,000

$50,300

2.

Gem's Jewelry made a cash sale of merchandise amounting to $2,500 to a customer in Tyler, Texas which has an 8.25% sales tax rate. The total amount of cash collected from the customer was:

Group of answer choices

$2,500.00

$2,706.25

$4,562.50

$206.25

3.

Baxter, Co borrowed $100,000 from the bank on September 1, 2018. The note had a 6% annual rate of interest and matured on August 31, 2019. Interest and principal were paid in cash on the maturity date. What was the amount of interest expense reported on the 2018
Income Statement? (Hint, think of how many months they had accrued interest during 2018?)

Group of answer choices

$6,000

$1,500

$2,000

$0

Answer 1

Answer:

1)

Amount of the payment to the bank             = Principal + Interest             = $ 50,000 + ( $ 50,000 x 6% )            =   $ 50,000 + $ 3,000            = $ 53,000

The amount of the payment to the bank on December 31, 2019 for the principal and interest   = $ 53,000

Option (C ) is Correct

2)

Total amount of cash collected from the customer               = Sale Amount + Sales tax              =   $ 2,500 + ( $ 2,500 x 8.25% )              =   $ 2,500 + $ 206.25              =    $ 2,706.25

Total amount of cash collected from the customer =    $ 2,706.25

Option (b ) is Correct

3)

For 2018, interest is Calculated for 4 months i.e., Septemberto January

Amount of interest expense reported               = $ 100,000 x 6% x 4/12               =    $ 2,000

Amount of interest expense reported on the 2018 Income Statement   = $ 2,000

Option (C ) is Correct