exercise 11 - 5 (algo) interest - bearing notes payable with year - end adjustments lo p1\nkeesha company…

exercise 11 - 5 (algo) interest - bearing notes payable with year - end adjustments lo p1\nkeesha company borrows $215,000 cash on december 1 of the current year by signing a 120 - day, 11%, $215,000 note.\nanswer is not complete.\ncomplete this question by entering your answers in the tabs below.\nreq 1 req 2 and 3 req 4\nwhat is the amount of interest expense in the current year and the following year from this note?\nnote: use 360 days a year. do not round intermediate calculations and round final answers to the nearest whole dollar.\n| | total through maturity | interest expense current year | interest expense following year |\n|--|--|--|--|\n| principal | | | |\n| rate (%) | | | |\n| time | | | |\n| total interest | | | |

exercise 11 - 5 (algo) interest - bearing notes payable with year - end adjustments lo p1\nkeesha company borrows $215,000 cash on december 1 of the current year by signing a 120 - day, 11%, $215,000 note.\nanswer is not complete.\ncomplete this question by entering your answers in the tabs below.\nreq 1 req 2 and 3 req 4\nwhat is the amount of interest expense in the current year and the following year from this note?\nnote: use 360 days a year. do not round intermediate calculations and round final answers to the nearest whole dollar.\n| | total through maturity | interest expense current year | interest expense following year |\n|--|--|--|--|\n| principal | | | |\n| rate (%) | | | |\n| time | | | |\n| total interest | | | |

Answer

Explanation:

Step1: Calculate total interest through maturity

The formula for simple - interest is $I = P\times r\times t$, where $P$ is the principal amount, $r$ is the annual interest rate, and $t$ is the time in years. Here, $P=$215000$, $r = 0.11$, and $t=\frac{120}{360}$. $I=215000\times0.11\times\frac{120}{360}=\frac{215000\times0.11\times120}{360}\approx7817$

Step2: Calculate interest expense in the current year

The note is signed on December 1. In the current year, the time $t_1$ from December 1 to December 31 is 31 days. Using the simple - interest formula $I_1 = P\times r\times t_1$, with $P = 215000$, $r=0.11$, and $t_1=\frac{31}{360}$. $I_1=215000\times0.11\times\frac{31}{360}=\frac{215000\times0.11\times31}{360}\approx2040$

Step3: Calculate interest expense in the following year

The interest expense in the following year $I_2$ is the total interest minus the interest expense in the current year. $I_2 = I - I_1$. Since $I\approx7817$ and $I_1\approx2040$, then $I_2=7817 - 2040 = 5777$

Total through maturity Interest Expense Current Year Interest Expense Following Year
Principal $215000$ $215000$ $215000$
Rate (%) $11$ $11$ $11$
Time $\frac{120}{360}$ $\frac{31}{360}$ $\frac{120 - 31}{360}=\frac{89}{360}$
Total interest $$7817$ $$2040$ $$5777$

Answer:

Total through maturity Interest Expense Current Year Interest Expense Following Year
Principal $215000$ $215000$ $215000$
Rate (%) $11$ $11$ $11$
Time $\frac{120}{360}$ $\frac{31}{360}$ $\frac{89}{360}$
Total interest $$7817$ $$2040$ $$5777$