Shady Equipment sells a truck to Fred for $100,000 on January 1, 2016. Payment o

Question

Shady Equipment sells a truck to Fred for $100,000 on January 1, 2016. Payment of $100,000 is received two years later and interest is paid at the end of two years. The truck is delivered two years later. The market rate of interest is 8%.

1. Refer to Shady Equipment. How much sales revenue will Shady report on January 1, 2016?

A) $0.00

B) $100,000

C) $66,640

D) $50,000

2. Refer to Shady Equipment. How much interest expense will Shady report over the term of the contract?

A) $16,640

B) $66,640

C) $50,000

D) $36,640

Please show your calculations.

Explanation / Answer

Answer =1

Sales are made in the the year 2016 only money is collected after two years with interest then we can take the truck sale value as sales revenue for the year 2016,

As per the above t,

Answer = Optuin B = $ 100,000

Answer =2)

CALCULATION OF THE INTEREST ON EQUIPMENT Years Amount Interet Per year 8% Cumulative Value                                    1 $          1,00,000.00 $             8,000.00 $                    1,08,000                                    2 $             8,640.00 $                    1,16,640 Interest Amount = Cumulative Value - Prinicipal Value   Interest Amount = $ 116,640 - $ 100,000 Interest Amount = $ 16,640 Answer = Option A = $ 16,640

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