Straight Industries Purchased a Large Piece of Equipment from Curvy

Multiple Choice

Straight Industries purchased a large piece of equipment from Curvy Company on January 1,2010.Straight Industries signed a note,agreeing to pay Curvy Company $400,000 for the equipment on December 31,2012.The market rate of interest for similar notes was 8%.The present value of $400,000 discounted at 8% for three years is $317,520.On January 1,2010,Straight recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520.How much is the 2011 interest expense,assuming that the December 31,2010 adjusting entry was made?

A) $27,434
B) $27,962
C) $32,000
D) $29,693