Question

Blanchard Corporation issued a 1-year, 9%, $150,000 note payable on April 30, 2022. Interest expense for the year ended December 31, 2021, is $8,000. $9,000. $12,000. $6,000.

Answer 1

The interest expense for the year ended December 31, 2021, for Blanchard Corporation is b) $9,000.

How is interest expense computed?

Interest expense is prorated.  Since Blanchard Corporation issued the notes on April 30, the interest expense for the year will not be for 12 months but only 8 months (May to December).

Data and Calculations:

Note payable = $150,000

Interest rate = 9%

Period of note = 1 year

Date of issuance = April 30, 2020

Interest expense at December 31, 2021 = $9,000 ($150,000 x 9% x 8/12)

Thus, the interest expense for the year ended December 31, 2021 is b) $9,000.

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