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30 August, 16:33

Baker Inc. acquired equipment from the manufacturer on 10/1/2018 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $918,000 on 4/1/2019 to satisfy the obligation in full. If Baker accrued interest of $9,000 on the note in its 2018 year-end financial statements, what is its imputed annual interest rate?

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  1. 30 August, 18:11
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    4%

    Explanation:

    Interest included in $918000 is for six months from 10/1/18 to 4/1/12.

    Interest for first three month period from 10/1/18 to 31/12/18 = $9000.

    This implies that:

    Interest from 1/1/19 to 4/1/19 = $9000.

    Principal amount excluding interest due:

    = Baker's obligation amount - Accrued interest - Accrued interest

    = $918,000 - $9,000 - $9,000

    = $900,000

    Interest rate:

    = [ ($9,000 * 12/3) : 900000] * 100

    = 4%
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