What rate should be used in recording interest expense

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Q1) On August 1, 2017. Obstacle Company's P5,000,000 one-year. noninterest-bearing own note due July 31, 2018 Wint discounted at the bank at 10.8%. The entity used the straight line method of amortizing discount.

1. What is the carrying amount of the note payable on August 1, 2017?

a. 5,000,000

b. 4,460,000

c. 4,500,000

d. 4,230,000

2. What is the interest expense for 2017?

a. 540,000

b. 270,000

c. 225,000

d. 315,000

3. What is the carrying amount of the note payable on December 31, 2017?

a. 5,000,000

b. 4,775,000

c. 4,685,000

d. 5,315.000

Q2) Undaunted Company discounted its own P5,000,000 one-year note at a bank, at a discount rate of 12%, when the prime rate was 10% In reporting the note in the statement of financial position prior to maturity, what rate should be used in recording interest expense?

a. 10.0%

b. 10.7%

c. 12.0%

d. 13.6%

Reference no: EM132944198

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