Question

On August 1, Year 1, Jackson Company issued a one-year $52,000 face value interest-bearing note with a stated interest rate of 9.00% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.

What is the amount of interest expense and the cash outflow for interest during the year ending December 31, Year 1? (Do not round your intermediate calculations.)

Interest Expense

Cash Outflow

Group of answer choices

$4680​

$4680​

$4680​

$0

$1950​

$1950​

$1950​

$0

Answer 1

Answer : Option - D, $1950​ and $0

Explanation :

The amount of interest expense and the cash outflow for interest during the year ending December 31, Year 1 :

Interest expense = $52,000 x 9.00% x 5 months / 12 months

= $1950

As the issued note is for 1 year, the amount of interest calculated at the endd of year 1 is accumulated with the principal amount of $52,000 and there is no cash outflow for interest during the year ending December 31, Year 1.

Both Principal and interest amount is paid at the maturity time of note.