Shady Equipment sells a truck to Fred for $160,000 on January 1, 2016. Payment of $160,000 is received is received on January 1, 2016, and interest is incurred over two years. The truck is delivered two years later. The market rate of interest is 9%. Refer to Shady Equipment. How much interest expense will Shady report over the term of the contract? (Do not round intermediary calculations, and round your final answer to the nearest whole number.)

Question

Quizplus · Accepted Answer

The interest expense is calculated using the formula for compound interest: Future Value = Present Value * (1 + rate)^n. Here, the Present Value is $160,000, the rate is 9%, and n is 2 years. The interest expense is the difference between the Future Value and the Present Value. Calculating this gives $160,000 * (1 + 0.09)^2 - $160,000 = $30,096.

Shady Equipment Sells a Truck to Fred for $160,000 on January