On December 31, 2013, Malcolm Corporation accrued interest on a $10,000 note payable that it had issued on March 1, 2013. The note was a 1-year note with interest at 6%. How did the year-end accrual of interest affect Malcolm's financial statements?

Question

Quizplus · Accepted Answer

At the end of the year, Malcolm Corporation would need to accrue interest expense on the note payable for the period from December 1, 2013, to December 31, 2013, which is equal to one month's worth of interest. The calculation of interest expense would be as follows:
($10,000 x 6%)/12 x 1 month = $50

As a result, Malcolm's financial statements would be affected in the following ways:
- The income statement would show an increase in interest expense of $50.
- The balance sheet would show an increase in the note payable liability of $10,000 and an increase in the accrued interest liability of $50.
- The statement of cash flows would not be affected since this is an accrual and not a cash transaction.

On December 31, 2013, Malcolm Corporation Accrued Interest on a $10,000