On 1 September, 2014, Able Company purchased a building from Regal Corporation by paying $2,000,000 cash and issuing a one-year note payable for the balance of the purchase price. Interest on the note is stated at an annual rate of 9% and is paid at maturity. In its 31 December 2014, statement of financial position, Able correctly presented the note and interest payable as follows
$\begin{array} { | l | l | }
\hline \text { Interest payable } & \$ 180,000 \
\hline \text { Notes payable, 9\%, due 1 September 2015 } & \$ 6,000,000 \
\hline
\end{array}$
-What is the amount of the interest expense Able will recognize on this note in 2015?

Question

On 1 September, 2014, Able Company purchased a building from Regal Corporation by paying $2,000,000 cash and issuing a one-year note payable for the balance of the purchase price. Interest on the note is stated at an annual rate of 9% and is paid at maturity. In its 31 December 2014, statement of financial position, Able correctly presented the note and interest payable as follows
$\begin{array} { | l | l | } 
\hline \text { Interest payable } & \$ 180,000 \
\hline \text { Notes payable, 9\%, due 1 September 2015 } & \$ 6,000,000 \
\hline
\end{array}$
-What is the amount of the interest expense Able will recognize on this note in 2015?

Quizplus · Accepted Answer

The interest expense for the full year on the note is calculated as $6,000,000 * 9% = $540,000. Since $180,000 was already recognized as interest payable in 2014, the remaining interest expense for 2015 is $540,000 - $180,000 = $360,000.

On 1 September, 2014, Able Company Purchased a Building from Regal