Question

On April 1, 2013, Maggie bought a new delivery truck for her business. The purchase price of the truck was $34,000. Maggie wrote a check for a 20% down payment. The interest rate on the loan is 8% and the loan period is nine months. How much interest must Maggie record when she pays off the loan on December 31st

Answer 1

interest expense = $1,632

Step-by-step explanation:

the original journal entry to record the purchase is:

April 1, 2013, truck purchased

Dr Truck 34,000

Cr Cash 6,800

Cr Notes payable 27,200

the interest expense = $27,000 x 8% x 9/12 = $1,632

the journal entry to record the payment of the note payable is:

December 31, 2013, payment of note payable

Dr Notes payable 27,200

Dr Interest expense 1,632

Cr Cash 28,832