Question

During the current year, Hainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance decreased by $300 and bond discounts decreased by $500. Cash paid for interest is?

Answer 1

To calculate the cash paid for interest, subtract the decrease in interest payable and add the decrease in bond discounts from the accrued interest expense.

Step-by-step explanation:

To calculate the cash paid for interest, we need to consider the changes in interest payable and bond discounts. Since the interest payable balance decreased by $300 and the bond discounts decreased by $500, this means that the company paid $300 less in interest expenses and $500 less in bond discounts compared to the accrual amounts on the income statement. Therefore, the cash paid for interest is equal to the accrued interest expense ($5,000) minus the decrease in interest payable ($300) plus the decrease in bond discounts ($500).

Cash paid for interest = Accrued interest expense - Decrease in interest payable + Decrease in bond discounts

Cash paid for interest = $5,000 - $300 + $500 = $5,200