The auditor's independent estimate of interest expense from notes payable uses average interest rates and
A) average notes payable outstanding.
B) year-end notes payable outstanding.
C) only notes payable above the level of materiality.
D) only notes payable to major lenders.

Question

Quizplus · Accepted Answer

The auditor's independent estimate of interest expense from notes payable uses average interest rates and average notes payable outstanding. This is because interest expense is typically calculated based on the average outstanding principal balance of the debt during the year, and the average interest rate during that same period. Year-end notes payable outstanding or only notes payable above the level of materiality or only notes payable to major lenders would not accurately reflect the interest expense for the entire year.

The Auditor's Independent Estimate of Interest Expense from Notes Payable