Question

Abardeen Corporation borrowed $90,000 from the bank on October 1, 2016. The note had an 6 percent annual rate of interest and matured on March 31, 2017. Interest and principal were paid in cash on the maturity date.

A.What amount of cash did Abardeen pay for interest in 2016?

B. What amount of interest expense was recognized on the 2016 income statement?

C.What amount of total liabilities was reported on the December 31, 2016, balance sheet?

D.What total amount of cash was paid to the bank on March 31, 2017, for principal and interest?

E.What amount of interest expense was reported on the 2017 income statement?

Answer 1

Solution A:

Amount of cash to be paid for interest in 2016 = 0

Solution B:

Amount of interest expense to be recognized in 2016 income statement = $90,000*6%*3/12 = $1,350

Solution C:

Amount of total liabilities to be reported on Dec 31, 2016 balance sheet = $90,000 + $1,350 = $91,350

Solution D:

Total amount of cash paid to bank on Mar 31, 2017 for principal and interest = $90,000 + $90,000*6%*6/12 = $92,700

Solution E:

Amount of interest expense to be reported in 2017 income statement = $90,000*6%*3/12 = $1,350