Kieso Company borrowed $600,000 for three months. The annual interest rate on the loan was 11%. Kieso's fiscal year ends on Dec 31. Kieso borrowed the $600,000 one month prior to the end of its current year and paid the $600,000 plus interest back two months into its current fiscal year. In regards to this loan, how much interest expense, if any, would Kieso report at the end of its last fiscal year? At the end of its current fiscal year?

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Saul

Business

29 October, 12:11

Kieso Company borrowed $600,000 for three months. The annual interest rate on the loan was 11%. Kieso's fiscal year ends on Dec 31. Kieso borrowed the $600,000 one month prior to the end of its current year and paid the $600,000 plus interest back two months into its current fiscal year. In regards to this loan, how much interest expense, if any, would Kieso report at the end of its last fiscal year? At the end of its current fiscal year?

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Zaria · Answer 1

Last fiscal year loan interest is $5,500

Current fiscal year loan interest is $11,000

Explanation:

The amount loan interest to report for the last fiscal year is one month loan interest while two months loan interest should be reported at end of its current fiscal year.

The rationale for this was that the loan was made used of one month in the last fiscal year and two months in the current fiscal year.

Interest for last fiscal year=$600,000*11%*1/12=$5,500

Interest for current fiscal year=$600,000*11%*2/12=$11,000