Question

SBS Corporation borrowed $70,000 from the bank on July 1, 2017. The note had a 6 percent annual rate of interest and matured on April 30, 2018. Interest and principal were paid in cash on the maturity date.

Required:

A.        What amount of interest expense was recognized on the 2017 income statement?

Interest Expense

$

B.        What amount of cash did SBS pay for interest in 2017?

Amount of Cash Paid

$

C.        What amount of total liabilities was reported on the December 31, 2017, balance sheet?

Total Liabilities

$

D.        What amount of interest expense was reported on the 2018 income statement?

Interest Expense

$

E.         What total amount of cash was paid to the bank on April 30, 2018, for principal and interest?

Amount of Cash Paid

$

Answer 1

Answer:
A.	The amount of interest expense was recognized to be recognized on 2017 income statement would be as follows:
	Interest expense =	Amount borrowed * Rate of interest * Number of years
		=$70,000 * 6%*6/12
		$                                  2,100
B.	The SBS would not pay any amount in cash in year 2017 for interest as both principal and interest is to be paid on 30 April 2018.
C.	The total liabilities reported on the December 31, 2017 Balance Sheet would be as follows:
	6% Notes payable	$                                70,000
	Interest Payable	$                                  2,100
	Total liabilities	$                                72,100
D.	The amount of interest expense was recognized to be recognized on 2018 income statement would be as follows:
	Interest expense =	Amount borrowed * Rate of interest * Number of years
		=$70,000 * 6%*4/12
		$                                  1,400
E.	Amount to be paid in cash	= Principal + Interest
		=$70,000 + (2,100+1,400)
		$                                73,500