On October 1, 2019, Donna Equipment signed a one-year, 10% interest-bearing note payable for $43,000. Assuming that Donna Equipment maintains its books on a calendar year basis, how much interest expense should be reported in the 2020 income statement?

The amount of interest expense which is to be reported in the Income statement in the year 2020 is $1,075

Explanation:

The amount of interest expense is computed as:

Interest expense = Amount of note payable * Interest rate * Number of months / 12

where

Amount of note payable is $43,000

Interest rate is 10%

Number of months is 3 (From October to December because it is a Calendar year)

Putting the values in the above:

= $43,000 * 10% * 3 / 12

= $4,300 * 3 / 12

= $1,075