Ivanhoe Excavating Inc. is purchasing a bulldozer. The equipment has a price of $108,100. The manufacturer has offered a payment plan that would allow Ivanhoe to make 15 equal annual payments of $15,871.71, with the first payment due one year after the purchase.
How much total interest will Ivanhoe pay on this payment plan?
Short term and long term financing are utilized to finance the operations of an entity. The amounts due are recorded as liabilities of an entity and matched to the asset financed.
Answer and Explanation:
Interest is the number of charges the financing company receives in consideration not receiving immediate payment. Interest is considered an expense of a company and is reported on the income statement.
- $15,871.71 annual payments x 15 annual payments = $238,075.65 total payments
- $238,075.65 total payments - $108,100 principal/purchase price = $129,975.65 total interest will be paid on this payment plan
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from Financial Accounting: Help and ReviewChapter 5 / Lesson 18