Question

On October 1, 2019, Omicron Company borrowed $32,000 cash and signed a 9-month, 10% interest-bearing note payable with interest payable at maturity. What amount of accrued interest payable should Omicron report on its December 31, 2019 balance sheet?

Multiple Choice

• $800.

• $1,200.

• $400.

• $1,600.

• Zero. No accrued interest payable should be reported on December 31, 2019.

Answer 1

Total Interest for 9 month = $32,000 * 10% * 9 / 12

= $3200 * 9 / 12

= $2,400

Therefore $2400 interest is payable on 10% note payable

Now this is for 9 months, we have borrowed the amount on Oct 1 & year end is 31st dec

Therefore we have to accrue 3 months interest

Accrued Interest = Total Interest * Current year holding period / Total Period

= $2400 * 3 / 9

= $800

Option A is correct.

-------------------------------------------------------

Note

If you have any queries kindly post a comment, i will solve it earliest.

If you satisfied with my answer, kindly give a thumbs up, it will help to encourage me.