During the year, the following items were charged to the interest expense account of Doe Corporation:

Interest on additional income taxes assessed two years ago $400 Interest on bank loan to finance installation of new machinery. Bank loan was refinanced when installation was completed $700 Interest deducted by bank from proceeds of Doe Corporation's 60-day note signed December 1, payable in full 60 days later $500

The maximum amount of interest expense that Doe Corporation, an accrual basis taxpayer, can deduct for the current year is:

1) $1,600

2) $1,100

3) $1,350

4) $700

5) None of these