Answer: a. Dr Interest expense $341.67
Cr Accrued Interest Liability $341.67.
b. Total Amount of Current Liabilities = $72741.67
Explanation:
Accrued Interest on notes Payable
The Note was issued on 1 September 2018, note Payable is $20500 interest interest will be incurred from the Month of September to February because the Note will be settled on 1 March 2019, How ever The year ended on the 31st of December (current financial period) which means Ozark Sales Company incurred interest for 4 months in the current year (1 September to 31 December 2018).
Interest Calculation
Note Payable Amount = $20500
Interest rate (R) = 5% per annum
Period (Number of months) = 4 months (September to December 2018)
Accrued Interest expense = $20500 x 5/100 x 4/12
Accrued Interest expense = $341.6666667 = $341.67
Journal Entry
Dr Interest expense $341.67
Cr Accrued Interest Liability $341.67.
Current Liabilities
Ozark Sales current liabilities include Purchased equipment inventory, Accrued Interest expense incurred on the Notes Payable and the Notes Payable amount. Ozark Sales Made a Payment of $125100, this payment was made to settle some of the total current liabilities.
The total Current Liabilities (The Balance) on 31 December 2018 will include all transactions mentioned about and the payment of $125100 will be subtracted. The Balance will the amount that will be reflected in the Balance sheet for Current Assets
Purchased Equipment inventory = $177 000
Notes Payable = $20500
Accrued Interest Liability = $ 341.67
Accounts Payable Payment = $125100
Total Amount of Current Liabilities = $177 000 + $20500 + $341.67 - $125100
Total Amount of Current Liabilities = $72741.67
