Question
Willow Industries purchased a large piece of equipment from Linear Company on January 1, 2009. Willow Industries signed a note, agreeing to pay Linear Company
Willow Industries purchased a large piece of equipment from Linear Company on January 1, 2009. Willow Industries signed a note, agreeing to pay Linear Company $200,000 for the equipment on December 31, 2011. The market rate of interest for similar notes was 11%. The present value of $200,000 discounted at 11% for three years is $146,238. On January 2, 2009, Willow Industries recorded the purchase with a debit to equipment for $146,238 and a credit to notes payable for $146,238. On December 31, 2009, Willow recorded an adjusting entry to account for interest that had accrued on the note. Assuming no adjusting entries have been made during the year, the approximate amount of interest expense that would have accrued at December 31, 2009, would be?
A. $10,667. B. $16,086. C. $12,701. D. $32,000. E. $25,337 There is so much information here, how would you break it down to make solving this problem easier?
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