Question

Question 3 4 pts Franklin Company borrowed $144,000 from a bank on March 1, 2021 and agreed to pay it back in eleven months at an interest rate of 19% per year. Calculate the amount of interest expense related to this loan reported in Franklin Company's 2022 income statement. Question 4 3.5 pts Which of the following accounts would be classified as a nominal account and have a normal balance of a debit? retained earnings patent salaries payable service revenue dividends more than one of the above is correct none of the above choices are correct Question 5 6 pts

Answer 1

Compute the amount of interest expense as follows: Interest expense = Amount borrowed x Interest rate x Time period = $144,000 19% x - 11 12 = $25,080 Thus, the total amount of interest expense is $25,080. Compute the interest expense related to loan reported in 2022 income statement as follows: Interest expense = Total interest Time period = $25,080 x = $2,280 Thus, the interest expense related to loan reported in 2022 income statement is $2,280. Note: It is been assumed that the year ends on December 31. Nominal accounts: Nominal accounts are those accounts that are closed at the end of the accounting period. The balance of these accounts is zero at the end of the accounting period. The balance of nominal accounts is not carried forward to next accounting period. These are also called temporary accounts. It includes expenses, revenues, gains, and losses. According to given question, dividends and service revenue are classified as nominal accounts but, only dividends have a normal balance of debit. Service revenue has credit balance. Though dividend is an item of balance sheet but, its balance is deducted from retained earnings account at the end of the accounting period, and thus, it will be classified as nominal account. Thus, correct answer is e i.e., dividends.