The beginning balance of Prepaid Interest was $1,800 and the ending balance was $2,600. The Interest Expense account for the year was $8,600.
How much cash was paid for interest?

Question

Quizplus · Accepted Answer

To find out how much cash was paid for interest, you need to adjust the Interest Expense by the change in the Prepaid Interest account. The beginning balance of Prepaid Interest was $1,800 and it increased to $2,600 by the end of the period, which means an increase of $800 ($2,600 - $1,800). This increase in Prepaid Interest means that more was paid in cash for interest than was expensed. Therefore, you add this increase to the Interest Expense to find the cash paid: $8,600 (Interest Expense) + $800 (increase in Prepaid Interest) = $9,400.

The Beginning Balance of Prepaid Interest Was $1,800 and the Ending