Question

Madison Company issued an interest-bearing note payable with a face amount of $13,200 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. Based on this information alone, the amount of total liabilities appearing on Madison's Year 1 balance sheet would be:

Answer 1

$13,640

Step-by-step explanation:

The computation of the total liabilities for the balance sheet is shown below:

Total liabilities

Note payable outstanding $13,200

Add: interest payable $440

Total liabilities outstanding $13,640

The interest is computed below:

= $13,200 × 5% × 5 months ÷ 12 months

= $440

The 5 months are calculated from August 1 to December 31 and the same is considered