Frankenstein Enterprises Received Two Notes from Customers for Sales That

question 90

Multiple Choice

Frankenstein Enterprises received two notes from customers for sales that it made to them in 2009. The notes included: Note A: Dated 5/31/09, principal of $120,000 and interest due 3/31/10.
Note B: Dated 7/1/09, principal of $200,000 and interest at 8% annually, due on 4/1/10.
Frankenstein had accrued interest receivable from these notes of $14,400 in its 12/31/09 balance sheet. What is annual interest rate on Note A?

• A)9.14%
• B)8%
• C)9.74%
• D)9.44% Note B accrued interest for 6 months during 2009: $200,000 .08 6/12 = $8,000.The rest of the interest accrued, $6,400 was from Note A which was held for 7 months in 2009.So, we have the following: $120,000 annual interest rate 7/12 = $6,400.Thus, the annual interest rate on Note A would be ($6,400 / 120,000) 12/7 = 9.14%.

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Definitions:

Encumbrances

Legal claims or liens on property or assets that may restrict their use or transfer.

Automobile Association

An organization dedicated to serving the interests of vehicle owners and drivers by offering services like roadside assistance, travel planning, and insurance.

Guarantor

An individual or entity that promises to pay a borrower's debt in the event the borrower defaults on a loan obligation.

Indemnity

A contractual obligation of one party to compensate for the loss or damage suffered by another.