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C. On May 30, 2010, KAC Inc. borrowed $300,000 on a 4-year, 6% promissory note, with interest payable annually. CHAPTER 10 REVIEW Interest Expense HANDOUT

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C. On May 30, 2010, KAC Inc. borrowed $300,000 on a 4-year, 6% promissory note, with interest payable annually. CHAPTER 10 REVIEW Interest Expense HANDOUT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC POINTS 6 Points BACKGROUND Chapter 10 discusses acquisition of property, plant and equipment and related issues, including the capitalization of interest. To successfully calculate actual interest and record the journal entry needed for interest capitalization, you first have to be comfortable with the accrual and payment of interest. There are two issues to think about when accruing interest: 1. How much interest expense should be accrued on the Income Statement during the current period? This determines the debit side of the entry. 2. How much interest expense will be paid with cash during the current period? This determines whether the credit side of entry is to Cash or Interest Payable or both) KAC Inc. is preparing year-end financial statements as of December 31, 2014. Prepare the journal entry to record the interest expense accrued during 2014 on each of KAC's outstanding borrowings. Note that you may have entries that only use 2 of the 3 T-Accounts, based on whether it is Cash only, Interest Payable only, or both. Round to the nearest dollar A. On March 1, 2014 KAC Inc. issued $500,000 of 9% bonds, due in 10 years, with interest payable semiannually. Show how the above interest transactions impacted KAC's 2014 Statement of Cash Flows, Income Statement, and Balance Sheet STATEMENT OF CASH FLOWS Net change in cash flow | JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC INCOME STATEMENT Net Income BALANCE SHEET (Current Period Changes) ASSETS: LIABILITIES + EQUITY: Change in Assets Change in Liabilities + Equity B. On August 1, 2013, KAC Inc. purchased equipment with a 2-year, $40,000, 5% note, with interest payable annually. | JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

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