Exercise 9-1B Recognizing accrued interest expense Union Corporation borrowed S6

Question

Exercise 9-1B Recognizing accrued interest expense Union Corporation borrowed S60,000 from the bank on November 1, 2016. The note had a o percent annual rate of interest and matured on April 30, 2017. Interest and principal were paid in cash on the maturity date. Required What amount of cash did Union pay for interest in 2016? nat amount of interest expense was reported on the 2016 income statement? what amount of total liabilities was reported on the December 31, 2016, balance sheet? interest? d. What total al amount of cash was paid to the bank on April 30, 2017, for principal an of e. What amount inte of interest expense was reported on the 2017 income statement?

Explanation / Answer

a.

As there is no payment of interest till due date the no cash outflow for 2016.

b.

Interest expense to be reported on the income statement as per accrual basis is calculated as below

Interest expense = $60,000 * 2/12 * 6%

                           = $600

c.

The amount of total liabilities to be reported in balance sheet includes both loan and accrued interest

Total liability = $60,000 + $600 = $60,600

d.

Calculation of interest

Interest expense = $60,000 * 6/12 * 6%

                           = $1,800

Total amount of cash to be paid on April 30, 2017 = $60,000 + $1,800

                                                                                 = $61,800

e.

The amount of interest expense to be reported on 2017 income statement

Interest expense = $60,000 * 4/12*6% = $1,200

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