Asked by Joshua Reavis on Jul 12, 2024
Verified
Scott used $4,000,000 from his savings account that paid an annual interest of 5% and a $60,000 loan at an annual interest rate of 5% to purchase a hardware store.After one year,Scott sold the business for $4,100,000. His accounting profits is:
A) $300,000
B) $100,000
C) $97,000
D) $20,000
Accounting Profits
The difference between a company's total revenue and its explicit costs, not including opportunity costs.
Savings Account
A deposit account held at a bank or financial institution that pays interest but typically has limited transactions.
Loan
Borrowed money that is expected to be paid back with interest to the lender, according to agreed terms and conditions.
- Determine accounting earnings by subtracting explicit expenses from the overall income.
Verified Answer
RH
Rachel HartfieldJul 14, 2024
Final Answer :
C
Explanation :
To calculate the accounting profit, we need to subtract the total expenses (including interest paid) from the total revenue.
Total revenue: $4,100,000
Total expenses:
- Interest on savings account: 5% of $4,000,000 = $200,000
- Interest on loan: $60,000 x 5% = $3,000
Total expenses = $203,000
Accounting profit = Total revenue - Total expenses = $4,100,000 - $203,000 = $3,897,000
Therefore, the answer is C) $97,000.
Total revenue: $4,100,000
Total expenses:
- Interest on savings account: 5% of $4,000,000 = $200,000
- Interest on loan: $60,000 x 5% = $3,000
Total expenses = $203,000
Accounting profit = Total revenue - Total expenses = $4,100,000 - $203,000 = $3,897,000
Therefore, the answer is C) $97,000.
Learning Objectives
- Determine accounting earnings by subtracting explicit expenses from the overall income.