Question

Chase Corporation borrowed $90,000 from the bank on November 1, 2018. The note had a 7% annual rate of interest and matured on April 30, 2019. Interest and principal were paid in cash on the maturity date.

A. What amount of interest expense was paid in cash in 2018?

B. What amount of interest expense was reported in the 2018 income statement?

C, What total amount of cash was paid to the bank on April 30, 2019 for principal and interest?

Answer 1

Req 1.
Amount borrowed:			90000
maturity date			30.04.19
No cash is paid in the year-2018
Req 2.
Amount borrowed			90000
Rate of interest			7%
Period expited from Nov01 to Dec31			2	months
Interest expense to be recognized = 90000*7%*2/12 = 1050
Req 3.
Amount borrowed				90000
Interest payable recognized in Year-2018				1050
Interest expense of the Year-2019				2100
from Jan01 to April 30 (90000*7%*4/12)
Total amount to be paid at the time of Maturity				93150