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27 July, 18:14

On October 1, 2019, Donna Equipment signed a one-year, 10% interest-bearing note payable for $43,000. Assuming that Donna Equipment maintains its books on a calendar year basis, how much interest expense should be reported in the 2020 income statement?

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  1. 27 July, 19:14
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    The amount of interest expense which is to be reported in the Income statement in the year 2020 is $1,075

    Explanation:

    The amount of interest expense is computed as:

    Interest expense = Amount of note payable * Interest rate * Number of months / 12

    where

    Amount of note payable is $43,000

    Interest rate is 10%

    Number of months is 3 (From October to December because it is a Calendar year)

    Putting the values in the above:

    = $43,000 * 10% * 3 / 12

    = $4,300 * 3 / 12

    = $1,075
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