Question

On Jun 1, 20X5, Ban Co. borrowed on a $1,440 000 note payable from the Federal Bank.

The note bears interest at 11% and is payable in three equal annual principal payments of $480,000. On this date, the bank's prime rate was 12%. The first and second annual payments for interest and principal was made on June 1, 20X6 and June 1, 20X7.

At December 31, 20X7, what amount should Ban report as accrued interest payable?

2.

At April 30, Year 1, a $1,500,000 note payable was included in Cab Corp.'s liability account balances. The note is dated May 1, Year 1, bears interest at 14%, and is payable in three equal annual payments of $500,000. The first interest and principal payment was made on May 1, Year 2. In its November 30, Year 2 balance sheet, what amount should Cab report as accrued interest payable for this note?

Answer 1

1.On June 1,2016 and June 1,2017 the first and second annual payments for interest and principal was made.

That means the balance principal amount in note payable on June 1, 2017 is ($1,440,000- first and second annual principal payments)=$1,440,000-(480,000 ×2)=$480,000

Now at Dec 31, 2017

Accrued interest payable =[($480,000 × 11%) ×7months]/12months= $30,800

Note: From June 1, 2017 to Dec 31,2017 = 7 months

2.The first interest and principal payment was made on May 1, year 2. Now balance of principal on May 1, year 2 :

=$1,500,000- first principal payments= $1,500,000-$500,000= $1,000,000

Now at Nov 30, year 2

Accrued interest payable =[($1,000,000 ×14%) × 7 months]/12months =$ 81,667

Note :From May 1 to Nov 30 = 7 months.