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Magenta Company purchased a machine from Pink Corporation on October 31, 2018. In payment for the $288,000 purchase, Magenta issued a one-year installment note to be paid in equal monthly payments of $25,588 at the end of each month. The payments include interest at the rate of 12%. The amount of interest expense that Magenta will report in its income statement for the year ended December 31, 2018, is:

(A) $5,760.
(B) $5,533.
(C) $2,559.
(D) $2,880.

Respuesta :

Nyctalus

Answer: Option B

Explanation: This could be calculated as follows :-

[tex]Interest\:expense\:for\:nov\:30\:2018=\:\$288,000\times \frac{12\%}{12}[/tex]

                                                               = $2880

Principal repayment for the month = $25,588 - $2880

                                                             =  $22,708

similarly:-

[tex]Interest\:expense\:for\:dec\:31\:2018=\:(\$288000-\$22,708)\times \frac{12\%}{12} =\:$2653[/tex]

therefore,

total interest expense = 2880 +2653 =$5,533