Use the following information for questions.
On March 1, 2017, Mauritania Ltd.purchased land for $270,000 cash, which they intend to use for their new head office.Construction on the office building began on March 1.The following expenditures were incurred for construction: The office building was completed and ready for occupancy on July 1.To help pay for construction, Mauritania borrowed $360,000 on March 1, 2017 on a 9%, three-year note payable.Other than this note, the only other debt outstanding during 2017 was a $150,000, 10%, six-year note payable dated January 1, 2016.
-The actual interest cost incurred during 2017 was

Question

Use the following information for questions.
On March 1, 2017, Mauritania Ltd.purchased land for $270,000 cash, which they intend to use for their new head office.Construction on the office building began on March 1.The following expenditures were incurred for construction:  The office building was completed and ready for occupancy on July 1.To help pay for construction, Mauritania borrowed $360,000 on March 1, 2017 on a 9%, three-year note payable.Other than this note, the only other debt outstanding during 2017 was a $150,000, 10%, six-year note payable dated January 1, 2016.
-The actual interest cost incurred during 2017 was

Quizplus · Accepted Answer

We need to calculate the actual interest cost incurred during 2017, which includes interest paid on both notes payable. For the 9% note payable, the interest expense incurred for 4 months (March 1 to June 30) can be calculated as follows:
Interest expense = Principal amount x Annual interest rate x Time
= $360,000 x 9% x 4/12
= $10,800
For the 10% note payable, the interest expense incurred for 12 months can be calculated as:
Interest expense = Principal amount x Annual interest rate
= $150,000 x 10%
= $15,000
Therefore, the total interest cost incurred during 2017 is:
$10,800 + $15,000 = $25,800
However, we also need to take into account the interest accrued on the 9% note payable as of December 31, 2017. Since the note is for three years, the remaining interest expense for the year can be calculated as:
Interest expense = Principal amount x Annual interest rate x Time remaining in the year / Time in a year
= $360,000 x 9% x 6/12
= $16,200
Therefore, the actual interest cost incurred during 2017 is:
$25,800 + $16,200 = $42,000.

Use the Following Information for Questions