Classic Corporation borrowed $90,000 from the bank on November 1, 2012. The note
ID: 2358283 • Letter: C
Question
Classic Corporation borrowed $90,000 from the bank on November 1, 2012. The note had an 8 percent annual rate of interest and matured on April 30, 2013. Interest and principal were paid in cash on the maturity date.Required:
a.) What amount of interest expense was reported on the 2012 income statement?
b.) What amount of total liabilities was reported on the December 31, 2012, balance sheet?
c.) What total amount of cash was paid to the bank on April 30, 2013, for principal and interest?
d.) What amount of interest expense was reported on the 2013 income statement?
Explanation / Answer
a.) What amount of interest expense was reported on the 2012 income statement?
Two months of interest:
90,000*0.08*2/12 = 1,200.
b.) What amount of total liabilities was reported on the December 31, 2012, balance sheet?
91,200 (note plus the accrued interest)
c.) What total amount of cash was paid to the bank on April 30, 2013, for principal and interest?
Six months of interest were owed: 90,000*0.08*6/12 = 3600.
Principal plus interest = 93,600
d.) What amount of interest expense was reported on the 2013 income statement?
Four months of interest
90,000*0.08*4/12 = 2,400