On January 1, 20X3, Shuey Company Borrowed $1,000,000 at a Variable

question 31

Multiple Choice

On January 1, 20X3, Shuey Company borrowed $1,000,000 at a variable rate based on LIBOR + 1.5% for 10 years with interest payable semi-annually. Shuey anticipates that interest rates will rise and has also arranged to receive a variable rate based on LIBOR + 1.5% in exchange for the payment of a 10% rate of interest. LIBOR rates were as follows on the reset dates: How much interest expense is recognized for the six months ended December 31, 20X3?

• A)$51,500
• B)$50,000
• C)$51,000
• D)$51,200

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Definitions:

Discharge

In legal terms, the release or extinguishment of an obligation, debt, or charge.

Collateral Mortgage

A type of mortgage where the borrower provides collateral other than the purchased property to secure the loan.

Building Mortgage

A type of loan specifically used for the purchase, construction, or improvement of buildings, secured by the building itself.

Acceleration Clause

A contractual clause that allows a lender to demand immediate repayment of all outstanding loans if certain conditions are violated.