Question

Crane Company borrowed $750000 from BankTwo on January 1, 2019 in order to expand its mining capabilities. The 5-year note required annual payments of $195327 and carried an annual interest rate of 9.5%. What is the amount of expense Crane must recognize on its 2020 income statement

Answer 1

The interest expense of $59,463 must be recognize on its 2020 income statement.

Step-by-step explanation:

With the given data make an amortization schedule

Hint : First determine the Future Value of the 5-year note

PV = $750,000

N = 5

Pmt = - $195,327

P/yr = 1

i = 9.5%

Fv = 0

Input the elements in a Financial Calculator.

2019

interest expense = $71,250

2020

interest expense = $59,463

Conclusion :

The interest expense of $59,463 must be recognize on its 2020 income statement.