In Year 1,Kris Purchased a New Home for $200,000 by Making

question 79

Multiple Choice

In year 1,Kris purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan,secured by the residence,at 6 percent.As of January 1,year 4,the outstanding balance on the loan was $40,000.On January 1,year 4,when his home was worth $300,000,Kris refinanced the home by taking out a $150,000 mortgage at 5 percent.With the loan proceeds,he paid off the $40,000 balance of the existing mortgage and used the remainder for purposes unrelated to the home.During year 4,he made interest only payments on the new loan of $7,500.What amount of the $7,500 interest expense on the new loan can Kris deduct in year 4 on the new mortgage as home related interest expense?

• A) $2,000.
• B) $5,000.
• C) $7,000.
• D) $7,500.

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Definitions:

Return On Equity

A measure of financial performance calculated by dividing net income by shareholder equity, indicating how effectively a company uses investments to generate earnings.

Average Total Stockholders' Equity

Average total stockholders' equity calculates the mean equity held by shareholders over a given period, indicating the ownership value in a company.

Net Income

Net Income is the total earnings computed as revenues minus expenses, taxes, and the cost of goods sold, indicating a company's profitability over a specified period.

Acid-Test Ratio

A liquidity ratio that measures a company's ability to pay off its current liabilities with quick assets (cash, marketable securities, and receivables).