Haystack, Inc

question 28

Multiple Choice

Haystack, Inc.manufactures machinery used in the mining industry.On January 2, 2016 it leased equipment with a cost of $200,000 to Silver Point Co.The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year.The equipment has an expected useful life of 5 years.Silver Point's incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method.The selling price of the equipment is $325,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co.What is the amount of interest expense recorded by Silver Point Co.for the year ended December 31, 2016?

• A)$29,250
• B)$23,400
• C)$26,000
• D)$32,500

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Definitions:

Monthly Interest Rate

The interest rate charged or earned, expressed on a monthly basis, typically used for loans or investments.

Monthly Interest Rate

It's the interest rate applied each month on loans, savings, or investments, calculated by dividing the annual interest rate by 12.