Question:

Another accounting question re: Interest Expense?

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Corp. A purchased a bulding Sept. 1, 2007 from Corp. B by paying $100,000 cash and issuing a one-year note payable for the balance of the price. Interest on the note is stated at an annual rate of 9% and is paid at maturity. In its Dec. 31, 2007 balance sheet Corp A correctly presented the note and interest payable as follows:

Interest Payable 15,000

Notes Payable w/9% interest due 7/1/08 500,000

What is the amount of interest expense Corp A will recognize in 2008?

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  1. The interest due date of 07/01/08 is that when the $15,000 is to be paid? I assume the $15,000 would be accrued expenditure in the balance sheet, being DR Interest payable in the P/L CR Other Creditors in the balance sheet.

    The note matures on the 01/09/08, therefore total interest paid would be 9% times $500,000 equals $45,000. As $15,000 relates to the year ended 31/12/2007, then $30,000 would be payable in 2008.

    As it reads as though the $15,000 would actually be paid in 2008, therefore $45,000 would be paid in 2008 but $15,000 would be accrued in the pervious year.

    Or am i missing something?

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