Question

On June 1 of the current year, Cross Corp. issued $300,000 of 8% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31,

what amount of interest expense should Cross report?

Answer 1

$6,000

Step-by-step explanation:

The computation of the interest expense is shown below:

= Total amount borrowed × interest rate × number of months ÷ total months in a year

= $300,000 × 8% × 3 months ÷ 12 months

= $6,000

The three months is calculated from October 1 to December 31

We have to apply the simple interest formula so that the accurate amount can come.