Question

On October 1, 2019, Donna Equipment signed a one-year, 10% interest-bearing note payable for $43,000. Assuming that Donna Equipment maintains its books on a calendar year basis, how much interest expense should be reported in the 2020 income statement?

Answer 1

The amount of interest expense which is to be reported in the Income statement in the year 2020 is $1,075

Step-by-step explanation:

The amount of interest expense is computed as:

Interest expense = Amount of note payable × Interest rate × Number of months / 12

where

Amount of note payable is $43,000

Interest rate is 10%

Number of months is 3 (From October to December because it is a Calendar year)

Putting the values in the above:

= $43,000 × 10% × 3/ 12

= $4,300 × 3/ 12

= $1,075