Question

4. Fortsman Inc. began operations on January 1, 20X4. It prepares financial statements in accordance with IFRS. The following is a summary of selected financial information for the year ended December 31, 20X4: • Equipment was purchased and brought into use on March 1, 20X4, at a cost of $300,000. Fortsman paid $80,000 cash and signed a 3% note for the balance payable in full on March 1, 20X6. Fortsman received a $250,000 shareholder loan that was advanced on May 1, 20X4. Interest is payable annually at 5%. Fortsman received $150,000 in proceeds from a bank loan that was advanced on June 1, 20X4. Interest is payable monthly on the first of the month at 4% per annum, starting July 1, 20X4. Fortsman made interest payments of $8,000 during the 20X4 year. What amount should Fortsman have reported as interest expense for the year ended December 31, 20X4? For ease of computation, base your interest calculations on whole months outstanding, rather than number of days outstanding. . a) $ 8,000 b) $ 9,333 c) $17,333 d) $19,333

Answer 1

page: 0 01 Inswer Given details Equipment cost = $ 300000 Fortsman paid. $ 80000 Forts man received $250000 shareholder loon Fotsman received in proceeds = $150000 interest payments = $8000 (20x4) What amount should fortsman have reported to expense des the year ended december 31, 2014 Interest Expense;- 3.1. note payable for lo months = ((300000 - 80000) x3 4x1%) = (x20000 * 3.1, X10112) interest $5500 shareholder loan for 8 months = c 250000 X 5 5./.x8112 = 4250000 X 0.03333 = 48333 Bank loan for 7 months = $150000 x 4./.x 7/12 = $150000% 0.02 3333 $ 3500 Total $5500 + $ 8333 + $ 3500 $19333 Therefore option c is correct