You Have Just Taken Out a Loan for $75,000

question 28

Multiple Choice

You have just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires you to maintain a compensating balance equal to 15 percent of the initial face amount of the loan. You currently have $20,000 in your checking account, and you plan to maintain this balance. The loan is an add-on installment loan which you will repay in 12 equal monthly installments, beginning at the end of the first month.
-First National Bank of Micanopy has offered you the following loan alternatives in response to your request for a $75,000, 1-year loan.
Alternative 1: 7 percent discount interest, with a 10 percent compensating balance.
Alternative 2: 8 percent simple interest, with interest paid monthly. What is the effective annual rate on the cheaper loan?

• A) 8.00%
• B) 7.23%
• C) 7.67%
• D) 8.43%
• E) 8.30%

Understand the impairment model for assets and recognize impairment losses.

Recognize the factors determining the useful life of intangible assets.

Comprehend the consolidation process for financial statements, including elimination entries and adjustments for fair value allocations.

Understand the consolidation process under the equity method and initial value method.

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Definitions:

Overstock

It refers to an excessive amount of inventory that a business holds, which exceeds the demand for those products.

Seafood Distributor

A business entity involved in the wholesale or retail distribution of seafood products to various outlets including markets and restaurants.

Commercial Fisher

A person or business involved in the catching and selling of fish for commercial purposes.

Voidable

Describes a legal transaction or agreement that may be nullified or rescinded by one or more parties.