On march 1 2010 fine co borrowed p10000 and signed a

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Intermediate Accounting: Reporting and Analysis
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Chapter 4 / Exercise M4-4
Intermediate Accounting: Reporting and Analysis
Jones/Wahlen
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2. On March 1, 2010, Fine Co. borrowed P10,000 and signed a two-year note bearinginterest at 12% per annum compounded annually. Interest is payable in full atmaturity on February 28, 2012. What amount should Fine report as a liability foraccrued interest at December 31, 2011? a. P0 b. P1,000 c. P1,200 d. P2,320Answer is (d) Accrued interest payable at 12/31/11 is interest expense which has beenincurred by 12/31/11, but has not yet been paid by that date. The note issued on 3/1/10 and interest is payable in full at maturity on 2/28/12.Therefore, there is one year and ten months of unpaid interest at 12/31/11(3/1/10 to 12/31/11). Interest for the first year is P1,200 (P10,000 × 12%).Since interest is compounded annually, the new principal amount for second year includes the original principal (P10,000) plus the first year’sinterest (P1,200). Therefore, accrued interest for the ten months ended12/31/11 is P1,120 (P11,200 × 12% × 10/12), and total accrued interest 12/31/11 is P2,320 (P1,200 + P1,120).
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3. On September 1, 2010, Brak Co. borrowed on a P1,350,000 note payable
We have textbook solutions for you!
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Intermediate Accounting: Reporting and Analysis
The document you are viewing contains questions related to this textbook.
Chapter 4 / Exercise M4-4
Intermediate Accounting: Reporting and Analysis
Jones/Wahlen
Expert Verified
from Federal Bank. The note bears interest at 12% and is payable inthree equal annual principal payments of P450,000. On this date, thebank’s prime rate was 11%. The first annual payment for interest andprincipal was made on September 1, 2011. At December 31, 2011, whatamount should Brak report as accrued interest payable?
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4. In its 2011 financial statements, Cris Co. reported interest expense ofP85,000 in its income statement and cash paid for interest of P68,000 inits cash flow statement. There was no prepaid interest or interestcapitalization either at the beginning or end of 2011. Accrued interest atDecember 31, 2010, was P15,000. What amount should Cris report asaccrued interest payable in its December 31, 2011 balance sheet?
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