Question

Oklahoma Oil Corp. paid interest of $780,500 during 2021, and the interest payable account decreased by $134,000. What was interest expense for the year?

Multiple Choice

• $780,500.

• $646,500.

• $914,500.

• $512,500.

Answer 1

Solution :- Calculation of Interest Expense for the year :-

Particulars	Amount ($)
Total Interest Paid During 2021	$ 780500
Less : Decrease in Interest Payable Account	($ 134000)
Interest Expense For the year 2021	$ 646500

Let understand this by an Example :-

Assume Interest Payable Account at the Beginning of the year 2021 = $ 200000

Now Interest Payable Account decreased by $ 134000.

Therefore, Interest Payable Account at the End of the year 2021 = $ 66000 {$ 200000 - $ 134000}

Now Calculate Interest Expense for the year 2021 from this example:-

Particulars	Amount
Interest Payable Account at the end of 2021	$ 66000
Add : Interest paid during the year 2021	$ 780500
Total	$ 846500
Less :Interest Payable Account at the Beginning of 2021	($ 200000)
Interest Expense for the Year 2021	$ 646500

Ans : Interest Expense for the year 2021 = $ 646500