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?

Question

Business

Karley Jimenez

17 January, 03:18

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?

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Answers (1)

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Rylie Mcclure · Answer 1

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