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On October 1, 2019, Donna Equipment signed a one-year, 8% interest-bearing note payable for $50,000. 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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Answer:

Interest expense should be reported in the 2020 income statement $3,000

Explanation:

Notes payable amount $ 50,000.00

1 year interest @8% (50000 x 8%) $    4,000.00

Less: Interest for 2019 for 3 months (4000/12*3) $    1,000.00

Interest expense for 2020 $    3,000.00

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