Question

Bill Darby started Darby Company on January 1, 2016. The company experienced the following events during its first year of operation:

a. Earned $1,600 of cash revenue.
b. Borrowed $3,000 cash from the bank.
c. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on September 1, Year 1, had a one-year term and an 10 percent annual interest rate.

Required:
a. What is the amount of interest payable at December 31, 2016?
b. What is the amount of interest expense in 2016?
c. What is the amount of interest paid in 2016?

Answer 1

Darby Company

a. The amount of interest payable at December 31, 2016 is $100.

b. The amount of interest expense in 2016 is $100.

c. The amount of interest paid in 2016 is $0.

Step-by-step explanation:

a) Data and Calculations:

Notes Payable to the bank = $3,000

Interest rate = 10%

Period of note = 1 year

Issue date = September 1

Interest on the note = $3,000 * 10% * 4/12 = $100

b) The interest payable in 2016 equals the interest expense for 2016. From the calculations, there is no payment for interest expense in 2016, that is why the interest payable equals the interest expense.