Refer to Exhibit 14-11.Hernandez's interest expense for 2011 is

A) $ 2, 736
B) $ 7, 513
C) $ 8, 265
D) $10, 000

Question

Refer to Exhibit 14-11.Hernandez's interest expense for 2011 isA) $ 2, 736B) $ 7, 513C) $ 8, 265D) $10, 000

Katie Grassa · Accepted Answer

Final Answer : C, Explanation :  The interest expense for 2011 is calculated by applying the incremental interest rate of 10% to the present value of the note at the beginning of 2011. The present value at the beginning of 2010 is $75,132. The interest for 2011 is 10% of $75,132, which is $7,513.20. This amount is added to the present value to get the value at the beginning of 2011, which is $75,132 + $7,513.20 = $82,645.20. The interest expense for 2011 is 10% of this new amount, which is $8,264.52, rounded to $8,265.

Refer to Exhibit 14-11.Hernandez's interest expense for 2011 is

A) $ 2, 736
B) $ 7, 513
C) $ 8, 265
D) $10, 000

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