1. what amount of interest expense has accrued on the bank loan? 2. .by what amo

Question

1. what amount of interest expense has accrued on the bank loan?

2. .by what amount will the book value of the office equipment decline after the appropriate December adjustment is recorded?

Required information [The following information applies to the questions displayed below] Omega Company adjusts its accounts at the end of each month. The following information has been assembled in order to prepare the required adjusting entries at December 31: (1) A one-year bank loan of $702,000 at an annual interest rate of 10% had been obtained on December (2) The company pays all employees up-to-date each Friday. Since December 31 fell on Tuesday, there was a liability to employees at December 31 for two day's pay amounting to $6,500 (3) On December 1, rent on the office building had been paid for four months. The monthly rent is $5.700 (4) Depreciation of office equipment is based on an estimated useful life of six years. The balance in the Office Equipment account is $14,040; no change has occurred in the account during the year (5) Fees of $9,500 were earned during the month for clients who had paid in advance. What amount of interest expense has accrued on the bank loan?

Explanation / Answer

Answer for 1)

Amount of interest expense has accrued on bank loan is:

$702000×10%×1/12months(since only one month is completed after taking the loan)

=$5850

Answer for 2)

In general the depreciation is recorded for the total year and hence decline of asset after appropriate December adjustment is:

$14040/6years=$2340 for entire year

Here it is also stated that Omega company adjusts all it's entries at end of each month the depreciation for the month will be:

$2340/12 months=$195

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