Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $260,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 10%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the amount of cash interest paid at the end of 2018?

Question

Quizplus · Accepted Answer

The cash interest paid at the end of 2018 is calculated using the agreed 2% interest rate on the principal amount of $260,000. Therefore, $260,000 * 2% = $5,200.

Hornet Motors Purchased a Custom-Made Metal Press for Use in Repairing