Baker Inc. acquired equipment from the manufacturer on 10/1/2021 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $918,000 on 4/1/2022 to satisfy the obligation in full. If Baker accrued interest of $9,000 on the note in its 2021 year-end financial statements, what is its imputed annual interest rate?

4%

Explanation:

For number of months Interest included in $918000:

= 10/1/21 to 4/1/22

= 6 months

It is given that interest for the first three months is $9,000 that is from 10/1/21 to 31/12/21.

Therefore, the interest from 1/1/22 to 4/1/22 is also $9,000.

The principal amount excluding interest due:

= Amount obligated to pay - Interest for first 3 months - Interest for next 3 months

= $918,000 - $9,000 - $9,000

= $900,000

Interest rate:

= [ (Accrued interest * No. of months) : Principal amount] * 100

= [ (9000 * 12/3) : 900000] * 100

= 4%