Question

Kieso Company borrowed $630,000 for five months. The annual interest rate on the loan was 9%. Kieso's fiscal year ends on December 31. Kieso borrowed the $630,000 one month prior to the end of its last fiscal year and paid the $630,000 plus interest back four months into its current fiscal year. How much interest expense, if any, would Kieso report at the end of its last fiscal year and at the end of its current fiscal year

Answer 1

Answer and Explanation:

The computation of the interest expense is shown below'

The following formula should be used:

= borrowed amount × rate of months × number of months ÷ total number of months

End of last year is

= $630,000 × 9% × 1 ÷ 12

= $4,725

And,

Current fiscal year is

= $630,000 × 9% × 4 ÷ 12

= $18,900

We simply applied the above formula so that the correct value could come

And, the same is to be considered