On October 1, 2019, Donna Equipment signed a one-year, 8% interest-bearing note payable for $50,000. Assuming that Donna Equipment maintains its books on a calendar year basis, how much interest expense should be reported in the 2020 income statement? $1,000. $2,000. $3,000. $4,000.

$3000

Explanation:

Based on the information given in the question, the interest expense that should be reported in the 2020 income statement goes thus:

We first calculate the interest for the year which will be:

= 50000 × 8% × 1

= 50000 × 0.08

= $4000

We then calculate the Interest for 3 since Donna Equipment signed the nite payable in October. This will be:

= ($000/12 × 3)

= $1,000.00

The interest expense that should be reported in the 2020 income statement will then be the difference in the values calculated above. This will be:

= $4000 - $1000

= $3000

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