A loan payment consists of $1,100 principal and $280 current-period interest that has not been accrued. Assume the interest is expensed rather than capitalized. What amount is current interest expense?
Correct Answer
C) $280.
Under the stated treatment, $280 is current interest expense. The $1,100 principal reduces the loan liability. Total cash paid is $1,380; cash paid and expense are not the same amount.
Why This Is the Correct Answer
Under the stated treatment, $280 is current interest expense. The $1,100 principal reduces the loan liability. Total cash paid is $1,380; cash paid and expense are not the same amount.
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