Asked by Shiva Kumar on Jun 29, 2024
Verified
Refer to Exhibit 14-10.The implied interest rate is
A) 6%
B) 7%
C) 8%
D) greater than 8%
Non-interest-bearing Note
A financial instrument or loan that does not accrue interest over its life, meaning the borrower repays only the principal amount.
Actuarial Information
Data related to evaluating risks and determining rates or premiums in the insurance and finance industries, based on statistical analyses.
- Understand the principles of accounting for non-interest bearing notes and their interest implications.
Verified Answer
KI
Krista Isabel TenorioJun 30, 2024
Final Answer :
C
Explanation :
The implied interest rate can be calculated using the present value of the note and the amount received. Using a financial calculator, the present value of the note is $11,670 and the future value (face value) is $20,000. The number of periods is 7. Solving for the implied interest rate gives 8%. Therefore, the best choice is C.
Learning Objectives
- Understand the principles of accounting for non-interest bearing notes and their interest implications.