What amount of interest expense has accrued on the bank loan? By what amount wil

Question

What amount of interest expense has accrued on the bank loan? By what amount will the book value of the office equipment decline after the appropriate December adjustment is recorded.?

Connect https//newconnect.mheducation.com/flow/connect html Free Screening-whe Help Save & E Required informatiorn [The following information applies to the questions displayed below] Omega Company adjusts its accounts at the end of each month. The following information has been assembled in order to prepare the required adjusting entries at December 31 (1) A one-year bank loan of $714,000 at an annual interest rate of 8% had been obtained on December 1. (2) The company pays all employees up-to-date each Friday. Since December 31 fell on Tuesday, there was a liability to employees at December 31 for two day's pay amounting to $6,700. (3) On December 1, rent on the office building had been paid for four months. The monthly rent is $5,900. (4) Depreciation of office equipment is based on an estimated useful life of six years. The balance in the Office Equipment account is $13,320; no change has occurred in the account during the year (5) Fees of $9,700 were earned during the month for clients who had paid in advance What amount of interest expense has accrued on the bank loan? Multiple Choice Next >

Explanation / Answer

Answer:

Interest Expenses accrued = $714,000 * 8% * 1/12
Interest Expenses accrued = $4,760

Depreciation using Straight Line Method = (Cost – Salvage Value) / Useful Life
Depreciation using Straight Line Method = (13,320 – 0) / 6
Depreciation using Straight Line Method = $2,220

Note:
It is Presumed that Office Equipment is purchased on December 31 and the Salvage Value is Zero and depreciation is calculated using Straight Line Depreciation method.

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