Question

On January​ 1, Year​ 1, Smart Touch Learning borrowed $ 10000 on a​ 3-year, 12​% note payable. At December​ 31, Year 1 the business should record

Answer 1

Smart Touch Learning will record a $1200 interest expense and a corresponding liability of the same amount as 'Interest Payable' on the balance sheet for the year on a 12% note payable.

Step-by-step explanation:

On January 1, Year 1, Smart Touch Learning borrowed $10000 on a 3-year, 12% note payable. By December 31, Year 1, the company would need to recognize interest expense for the year.

The interest for one year at a 12% annual rate on a $10000 loan is calculated as $10000 x 12% = $1200. This interest is considered an expense for the year and should be recorded on the income statement, while the corresponding liability for the unpaid interest is recorded on the balance sheet as 'Interest Payable.'