Question

Maurice Inc. was started on January 1, 2017 and provided you with the following ending balances of its accounts on December 31, 2017: Cash Equipment Accounts payable Accounts receivable Buildings Note payable A, due March 31, 2018 Sales revenue Note payable B, due December 31, 2019 $44,800 36,000 Advertising expense 85,120 97,440 Inventory 560,000 Prepaid rent Salary and wages expense $78,400 11,200 6,720 11,200 6,720 744,880 36,960 201,600 Salary and wages payable 33,600 Common shares 448,000 Rent expense 66,000 Cost of goods sold

What is the interest expense?

Please explain the answer step by step. Thank you!

Answer 1

Note payable A was issued on March 31, 2017, hence interest is payable on it during 2017 for 9 months i.e. from April to December.

Interest payable on Note payable A for the year ended December 31, 2017 = 33,600 x 10% x 9/12

= $2,520

Note payable B was issued on July1, 2017, hence interest is payable on it during 2017 for 6 months i.e. from July to December.

Interest payable on Note payable B for the year ended December 31, 2017 = 66,000 x 8% x 6/12

= $2,640

Hence, interest expense of year 2017 = Interest on Note payable A + Interest on Note payable B

= 2,520 + 2,640

= $5,160

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