The Jarvis Company issued a $22,000 face value interest bearing note with a stat
ID: 2473994 • Letter: T
Question
The Jarvis Company issued a $22,000 face value interest bearing note with a stated interest rate of 9.2%, and a one-year term. The note was issued to the National Bank on August 1, 2011.
The amount of interest expense and cash outflows shown on the 12/31/2012 financial statements would be: (Round your answer to nearest whole number.)
The Jarvis Company issued a $22,000 face value interest bearing note with a stated interest rate of 9.2%, and a one-year term. The note was issued to the National Bank on August 1, 2011.
Explanation / Answer
Interest expense for the period from 1st August,2012 to 31/12/2012
=Face value*Interest rate * number of months
=$(22,000*9.2%)*7/12
=$1181
Note-For the year ending 31.12.2012 the interest will be paid only for 7 months i.e. 1.1.12-31.7.12 because the note was issued on 1.8.2011 for a term of 1 year ending on 31.7.2012
Cash Outflow =Principal Amount + Total Interest Expenses
=$(22000+2024)
=$24024
Total interest Expense for 1 year term =$22000*9.2%
=$2024
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