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Wildhorse Co. is a cash-basis business. Wildhorse signed a 6-month, 12% note payable of $10000 on...

Wildhorse Co. is a cash-basis business. Wildhorse signed a 6-month, 12% note payable of $10000 on October 1st, 2017. By recording the interest expense related to the note only when it is paid on April 1st, 2018, Wildhorse will understate expenses by ________ on its year-end financial statements on December 31st, 2017.

what am i doing wrong?

10000 x 12% x 6/12 = 600.

right?

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Answer #1

Answer

--1st Oct 2017 to 31 Dec 2017 = 3 months

--Hence, if interest expense is not adjusted on 31 Dec 2017, the expenses will be UNDERSTATED by accrued expense for 3 months

--3 month's interest Expense = $ 10000 x 12% x 3/12 = $ 300

--Correct Answer = $ 300

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