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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?
Expert Solution
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
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