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21 February, 02:58

In its cash flow statement for the current year, Ness Co. reported cash paid for interest of $70,000. Ness did not capitalize any interest during the current year. Changes occurred in several balance sheet accounts as follows:

Accrued interest payable $17,000 decrease

Prepaid interest 23,000 decrease

What amount of interest expense for the current year will Ness report in its income statement?

a) $ 30,000

b) $ 64,000

c) $ 76,000

d) $110,000

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  1. 21 February, 04:03
    0
    C. $ 76,000

    Explanation:

    a) Accounting Entry of Cash Paid for Interest

    Debit: Interest expense $ 70,000

    Credit: Cash $ 70,000

    b) Accounting entry of decrease in Accrued Interest Payable

    Debit: Interest Payable $ 17,000

    Credit: Interest Expense $ 17,000

    C) Accounting Entry of Decrease in Prepaid Interest

    Debit: Interest Expense $ 23,000

    Credit: Prepaid Interest $ 23,000

    If interest expenses of above mentioned 3 accounting entries are accumulated then answer will be as follows;

    Interest Expense: $70,000-$17,000+$23,000 = $ 76,000
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