Question

Kieso Company borrowed $760,000 for six months. The annual interest rate on the loan was 9%. Kieso's fiscal year ends on December 31. Kieso borrowed the $760,000 one month prior to the start of its current fiscal year and paid back the $760,000 plus interest five months into its current fiscal year. In regards to this loan, how much interest expense, if any, would Kieso report at the end of its last fiscal year? At the end of its current fiscal year?

Answer 1

1.The interest expense Kieso reported at the end of its last fiscal year: $5,700

2. The interest expense Kieso reported at the end of its curent fiscal year: $28,500

Step-by-step explanation:

The interest amount Kieso Company had to pay for the loan:

($760,000 x 9%)/12 x 6 = $34,200

In Kieso's fiscal year ends on December 31, the company had borrowed the $760,000 for one month. Following the Accrual basis, Kieso would report at the end of its last fiscal year the interest expense for 1 month:

$34,200/6 = $5,700

At the end of its current fiscal year, the company would report the interest expense for remainder months (5 months):

$34,200/6 x 5 = $28,500