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Homework answers / question archive / The following events apply to Koosman Co
The following events apply to Koosman Co. for fiscal 2012 and 2013:
Borrowed $72,000 from the local bank on April 1, 2012, when the company was started. The note had an 8% annual interest rate and a one-year term to maturity.
Recognized $188,000 of revenue on account in 2012.
Recognized $252,000 of revenue on account in 2013.
Collected $164,000 cash from accounts receivable in 2012.
Collected $246,000 cash from accounts receivable in 2013.
Paid $116,000 of salaries expense in 2012.
Paid $138,000 of salaries expense in 2013.
Paid the loan and interest at the maturity date.
What amount of interest expense would be reported on the 2012 income statement?
Given that $72,000 was borrowed on April 1, 2012
The company follows calendar year as fiscal year.
This means interest of only 9 months (from April to December) relates to fiscal year 2012.
So, interest would be computed for 9 months only for 2012
Interest to be debited in income statement of 2012 = $72,000 * 8% * (9/12)
Interest to be debited in income statement of 2012 = $4,320
