Answer: - $103,000
Explanation:
Cash from the savings account = $4,000,000
Interest earned = 5%
Loan amount = $60,000
Loan interest = 5%
Total sale price = $4,100,000
According to the information provided,
Scott allocated $4,000,000 from his savings that yields a 5% annual interest, while also taking out a $60,000 loan with a 5% annual interest rate.
Interest on the loan = 0.05 × $60,000 = $3,000
The business was sold for $4,100,000 after one year. Thus, the return on his investment is
$(4,100,000 - 4,000,000 - 3000) = $97,000
However, had Scott maintained his $4,000,000 in the savings account, he would have received
0.05 × 4,000,000 = $200,000 in interest.
Therefore, calculating the accounting profit gives:
$97,000 - $200,000 = - $103,000
