Answer: - $103,000
Explanation:
Cash from saving = $4,000,000
Interest on saving = 5%
Loan taken = $60,000
Interest on loan = 5%
Cost of sale = $4,100,000
From the above information,
Scott invested $4,000,000 if his saving which yields annual interest of 5% and took a $60,000 loan with an interest of 5% per annum.
Interest paid on loan = 0.05 × $60,000 = $3000
Business was sold for $4,100,000 a year later. Therefore, return on his investment
$(4,100,000 - 4,000,000 - 3000) = $97,000
However, if Scott had left the $4,000,000 invested in his saving account, he would have received
0.05 × 4,000,000 = $200,000 as interest.
Therefore, accounting profit :
$97,000 - $200,000 = - $103,000
