Question

The ledger of Sarasota Corp. on March 31 of the current year includes the following selected accounts before quarterly adjusting entries have been prepared:

		Debit		Credit
Prepaid Insurance		$3,900
Supplies		2,550
Equipment		25,900
FV-OCI Investments		177,000
Accumulated Depreciation—Equipment				$8,640
Notes Payable				29,000
Unearned Rent Revenue				8,050
Rent Revenue				58,900
Interest Expense		-0-
Salaries and Wages Expense		13,600

An analysis of the accounts shows the following:

1.		The equipment depreciation is $360 per month.
2.		One half of the unearned rent was earned during the quarter.
3.		Interest of $435 has accrued on the notes payable.
4.		Supplies on hand total $920.
5.		Insurance expires at the rate of $325 per month.
6.		The FV-OCI Investments were purchased for $177,000 on March 1. No investments were purchased or sold after that date. The fair value on March 31 was $197,000.

If the notes payable have been outstanding since January 1 of the current year, what is the annual interest rate on the notes payable? (Round answer to 2 decimal places, e.g. 15.25%.) what is the annual rate?

Annual Interest Rate

Answer 1

Calculate annual interest rate

Interest expense = Amount*rate*time

435 = 29000*X*3/12

435 = 7250X

X = 435/7250 = 6%