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On September 1, 2020, Collins Company issued a note payable in the amount of 3,600,000 and payable in three equal annual principal payments of 1,200,000
On September 1, 2020, Collins Company issued a note payable in the amount of 3,600,000 and payable in three equal annual principal payments of 1,200,000. on this date, the prime rate was 11%. the first interest and principal payment was made on september 1, 2021. on december 31, 2021, what amount should be reported as accrued interest payable?
Expert Solution
Given,
Amount of Notes Payable = $3,600,000
Interest Rate = 10% per annum
Principal is to be repaid in equal installments in 3 years
Annual installment of principal = $1,200,000
So, the amount of principal outstanding after first equal annual principal payment:
$3,600,000 -$1,200,000
=$2,400,000
Payment was made on September 1, 2021
Therefore 4 months remain in 2021.
Accrued Interest Payable on December 31, 2021 = Principal Outstanding * Rate of Interest * 4 /12
= $2,400,000 *10% *4 /12
= $80,000
So, Accrued Interest Payable on December 31, 2021 is $80,000.
Note: Interest rate is not given in the question. So, I have assumed 10% interest rate.
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