Fiat borrowed $80,000 on October 1, 2019. Fiat will not make any payments until October 1, 2021, and at that time, Fiat will pay $84,000. Which of the following correctly states the annual financial statements as of December 31, 2020. a. A Interest payable of $2,500; interest expense of $2,500 b. Interest payable of $1,500; interest expense of $2,000 c. Interest payable of $4,000; interest expense of $2,500 d. Interest payable of $2,500; interest expense of $2,000

Question

Ace Bernard

Business

15 May, 06:35

Fiat borrowed $80,000 on October 1, 2019. Fiat will not make any payments until October 1, 2021, and at that time, Fiat will pay $84,000. Which of the following correctly states the annual financial statements as of December 31, 2020. a. A Interest payable of $2,500; interest expense of $2,500 b. Interest payable of $1,500; interest expense of $2,000 c. Interest payable of $4,000; interest expense of $2,500 d. Interest payable of $2,500; interest expense of $2,000

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Answers (1)

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Faulkner · Answer 1

The answer is d. Interest payable of $2,500; interest expense of $2,000

Explanation:

Interest component over 2 years = $84,000 - $80,000 = $4000

interest expense for a year = 4000/2 = $2000

Interest payable = 1.25 years * 2000 = $2500