Molly Ellen, bookkeeper for Keystone Company, forgot to send in the payroll taxes due on April 15. She sent the payment November 8. The IRS sent her a penalty charge of 8.80% simple interest on the unpaid taxes of $3,600. Calculate the penalty. (Remember that the government uses exact interest.) (Use Days in a year table.)
I=Po*r*t = 3600*(0.088/365)*207=$179.66
= Penalty.
$179.66
To calculate the penalty charge, we need to determine the number of days the payment is late and then calculate the interest using the exact interest formula.
Step 1: Calculate the number of days the payment is late.
The payment was due on April 15, and it was sent on November 8. We need to find the number of days in between these two dates.
Months between April and November: April, May, June, July, August, September, October = 7 months.
Days in each month: 30, 31, 30, 31, 31, 30, 31 = 184 days.
Days in April: 30 - 15 = 15 days.
Total number of days late = 7 * 30 + 15 = 225 days.
Step 2: Calculate the penalty using the exact interest formula.
Interest rate = 8.80% = 0.088.
Principal amount (unpaid taxes) = $3,600.
Exact interest formula: Interest = Principal x Rate x Time
In this case, Time = Number of days late / Number of days in a year
Number of days in a year = 365.
Time = Number of days late / Number of days in a year = 225 / 365 = 0.616.
Interest = $3,600 x 0.088 x 0.616 = $195.22.
Therefore, the penalty charge is $195.22.
To calculate the penalty, we need to find the simple interest on the unpaid taxes of $3,600 using the formula:
Simple Interest = Principal * Rate * Time
Here, the principal is $3,600, and the rate is 8.80%. However, since the government uses exact interest, we need to calculate the number of days between April 15 and November 8.
Using the Days in a Year Table, we find that there are 30 days in April, 31 days in May, 30 days in June, 31 days in July, 31 days in August, 30 days in September, 31 days in October, and 7 days in November.
Total number of days = 30 + 31 + 30 + 31 + 31 + 30 + 31 + 7 = 221 days
Now that we have the principal, rate, and time, we can calculate the simple interest:
Simple Interest = $3,600 * 8.80% * (221 / 365)
To convert the percentage to a decimal, we divide it by 100. Then we multiply it by the fraction 221/365 to get the proportionate interest based on the number of days.
Simple Interest = $3,600 * 0.088 * (221 / 365)
Calculating this, we find:
Simple Interest = $3,600 * 0.088 * (221 / 365) = $457.79
Therefore, the penalty charged by the IRS is $457.79.