Requirement:

Calculate the total interest expense incurred in 2020.

 

Nature Gnome Company plans to raise the capital by issuing $1,400,000 of 10%, five-year bonds on January 2, 2020. The bonds pay interest semiannually on June 30 and December 31. The company receives $1,399,000 when the bonds are issued. The company also issues a mortgage payable for $500,000 on January 2, 2020. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of $25,000 plus interest for twenty years, payable on December 31. The mortgage interest rate is 10%.