Question

On June 1, 2016, Oakcrest Company signed a three-year $110,000 note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2017. What amount of interest expense should be reported on the income statement for the year ended December 31, 2016?

Answer 1

Interest expense recognized as for year ending December 31, 2016 is $5,775

Step-by-step explanation:

Given:

Note payable amount = $110,000

Interest rate = 9% or 0.09

Notes payable was issued on 1st June 2016. Interest is payable every year for 3 years on June 1.

Interest due as on December 31, 2016 will be pertaining to 7 months (June - December) as interest is recognized in the income statement as it is incurred irrespective of when it is paid. Calculation of interest recognized as on December 31 2016:

Interest recognized =
`$110,000*0.09*(7)/(12)`

= $5,775

Therefore, $5,775 interest amount is reported on the income statement for the year ending December 31 2016.