Question

Abardeen Corporation borrowed $114,000 from the bank on October 1. Year 1. The note had an 4 percent annual rate of interest and matured on March 31, Year 2. Interest and principal were paid in cash on the maturity date. Required a. What amount of cash did Abardeen pay for interest in Year 1? b. What amount of interest expense was recognized on the Year 1 income statement? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) c. What amount of total liabilities was reported on the December 31, Year 1, balance sheet? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) d. What total amount of cash was paid to the bank on March 31, Year 2, for principal and interest? e. What amount of interest expense was reported on the Year 2 income statement? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) a. Amount of cash paid b. Interest expense c. Total liabilities d. Amount of cash paid e. Interest expense < Prev 11 of 14 # Next >

Answer 1

a.Amount of cash paid = $0, since entire amount is paid on maturity

b.Interest Expense = Loan Amount*Interest rate*Time period

= 114,000*4%*6/12

= $2,280

c.Total liabilities = 114000 + 2280 = $116,280

d.Cash paid = 114000 + 2280 + 114000*4% = $120,840

e.Interest Expense for full year = 114000*4% = $4,560