Question

On Kyle Thomason’s $400,000.00 loan, the lender charges a 2-point service charge. In this situation, how much will Kyle have to pay for this service charge at closing, and how would such a charge appear on the statement?
a) $800.00, as a debit to the buyer.
b) $8,000.00 as a credit to the buyer.
c) $8,000.00 as a debit to the buyer.
d) $80,000.00 debit to the buyer.

Answer 1

Answer:

The answer is C

Explanation:

This is an interest expense.

In accounting, the rule is as follows:

Debit side increases asset and expenses while credit side decreases liability, shareholders' equity and sales or revenue.

Credit side decreases asset and expenses while credit side increases liability, shareholders' equity and sales or revenue.

2 points on $400,000 means the interest charge is 2 percent on $400,000.

So we have 0.02 x $400,000

$8,000.

It will be a debit side because it is an increase in expense.

Answer 2

Answer:

c) $8,000.00 as a debit to the buyer.

Explanation:

Point is referred to the percentage of anything. 1 point means 1%. 2 point service charges mean 2%of service charges of the total amount.

Amount of Loan = $400,0000

Service charges rate = 2 points / 2%

Service charges = $400,000 x 2% = $8,000

Service charges amount is paid by Kyle is an expense which is shown as debit as an expense