Question

In: Accounting

Braxton Co. borrowed $65,000 from the bank on October 1, 2015. The note had an 4.5...

Braxton Co. borrowed $65,000 from the bank on October 1, 2015. The note had an 4.5 percent annual rate of interest and matured on March 31, 2016. Interest and principal will be paid in cash on the maturity date.

Required:

A. What amount of cash did Braxton Co. pay for interest in 2015?

B. What amount of interest expense was reported on the 2015 income statement?

C. What is the total liabilities reported on the December 31, 2015, balance sheet? (Consider the note and the interest)

D. What is the total cash paid to the bank on March 31, 2016 for principal and interest?

E. What amount of interest expense will be reported on the 2016 income statement?

Solutions

Expert Solution

Req A: As the total cash is paid for principal and interest amount on Mar 31, 20161.

Therefore, the amount of cash paid for interest 20 2015: Nil

Req B:

Amount borroed on notes payable: $ 65,000 on Oct 1 2015

Period of borrowing in Year 2015: 3 months

Interest payable: 65000 *4.5%*3 months = $731.25

Req C: Total liabilities to be reported in 2015 Balance sheet:

Notes payable:                 $65,000

Interest payable:              $731.25

Total liabilities to be reported in 2015: $65731.25

Req D:

Total interest due on Mar 31, 2016 = 6 months

Amount of interest to be paiid: 65000 *4.5%*6/12 = $1462.50

Therefore, total amount off cahs to be paid on Mar31, 2016 = Principal of $65000 + Interest of $1462.50 = $ 66,462.50

Req E:

Interest to be reported in 2016 Income statement:

Total interest paid:                        $1462.50

Less: Interest payable of 2015:    $731.25

Interest expense for 2016:            $731.25


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