Allstar Company signed a $150,000 mortgage on July 1, 2018, for the purchase of their new garage building. The mortgage entailed equal monthly payments of $2,700 at the end of each month. The interest rate is 8.0% per year. How much interest expense will be paid on August 31, 2018?
The interest expenses are the cost of borrowing funds. The nature of such costs is non-operating hence, these are shown in the income statement of the firm.
Answer and Explanation:
Calculate interest expense on August 31, 2018
|Month||Cash payment||Interest expense||Principal balance||Carrying value|
|July 31,2018||$2,700||$150,000 * 8% * 1/12 = $1,000||$1,700||$148,300|
|Aug 31,2018||$2,700||$148,300 * 8% * 1/12 = $988.67||$1,711.33||$146,588.67|
The interest expense on August 31, 2018 = $988.67
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from Financial Accounting: Help and ReviewChapter 5 / Lesson 18