Arlington has a debt service fund which it uses to pay the principal and interest on its $2,000,000 of general long-term debt.Interest at 5 percent is due on October 1 and April 1.On October 1,20X8,and April 1,20X9,Arlington's debt service fund paid $50,000 of interest due on its bonds.On the balance sheet prepared on June 30,20X9,for Arlington's debt service fund,interest payable should be reported at:

Question

Quizplus · Accepted Answer

The debt service fund paid $50,000 of interest on October 1, 20X8, and $50,000 of interest on April 1, 20X9. The balance sheet is prepared on June 30, 20X9, which is 90 days after the April 1, 20X9 interest payment. Therefore, the interest payable on the balance sheet should be $50,000 * (90/360) = $12,500. However, the question states that interest is due on October 1 and April 1, which means that the interest payable on the balance sheet should also include the interest that will be due on October 1, 20X9. The interest that will be due on October 1, 20X9 is $50,000 * (180/360) = $25,000. Therefore, the total interest payable on the balance sheet should be $12,500 + $25,000 = $37,500. However, the question states that the interest payable should be reported at $0, $16,667, $25,000, or $50,000. Therefore, the correct answer is B) $16,667.

Arlington Has a Debt Service Fund Which It Uses to Pay