Question

On September 1, 2018, Able Company purchased a building from Regal Corporation by paying $580,000 cash and issuing a one-year note payable for the balance of the purchase price. Interest on the note is stated at an annual rate of 11% and is paid at maturity. In its December 31, 2018, balance sheet, Able correctly presented the note and interest payable as follows:

Interest Payable: $ 19,800

Notes Payable, 11% due September 1, 2019 $540,000

1. How much must Able pay Regal Corporation on September 1, 2019, when the note matures?

2. What is the amount of the interest expense Able will recognize on this note in 2019?

3. What is the total cash (including interest) paid for the building purchased by Able?

4. The company's annual payroll-related expenses amount to approximately?

Answer 1

Working Note
Rate of Interest = 11%
Year	Amount	Interest
September 1, 2018	540000
December 31, 2018		19800
September 1, 2019		39600
Total	540000	59400
Requirement 1	When Notes matures on September 1, 2019, Able must pay Regal corporation Principal amount together with
	interest i.e	599400
	Notes payable	540000
	Interest	59400
	Total Payable	599400
Requirement 2	The amount of Interest Able will recognize on this Notes Payable is					39600
Requirement 3	The total cash paid for building purchased by Able including interest is as follow
	Cash paid at the time of purchase of building		580000
	Notes payable		540000
	Interest		59400
	Total cash paid for purchase of building		1179400
Requirment 4	Payroll related expense does not come into picture in this question. So it is not answered.