On September 28, Reeve Incorporated purchased equipment with a purchase price of

Question

On September 28, Reeve Incorporated purchased equipment with a purchase price of $39,648 plus 6% sales tax. Shipping terms were FOB Shipping Point and shipping charges were $287. Installation was completed, and the new equipment was placed in service on October 1. Installation costs totaled $955. The shipping and installation costs were paid for in cash on September 28. The equipment purchase price, including sales tax, was paid for by issuing a 120 day 5% Note Payable on October 1. Based on past experience, the equipment is expected to have a useful life of 8 years, at which time it will have an estimated worth of $4,600. The equipment will be depreciated using the Straight Line method. Assuming a 360-day year for your calculation, what is the Accrued Interest Expense on the Note on October 31?

Explanation / Answer

Amount of Note payable: Cost of Equipment purchased 39648 Add: Sales tax at 6% 2379 Amount of Note payable on Oct1. 42027 Number of days expired on Oct31 30 days Rate of Interest 5% Interest expense payable on Oct 31 175 (42027*5% *30/360)

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