Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid each loan on its scheduled maturity date. Term of Loan 1 year Loan A Loan B Loan C Date of Loan Amount $ 5,000 11/1/Year 2 2/1/Year 3 5/1/Year 3 15,000 8,000 Maturity Date 10/31/Year 3 7/31/Year 3 1/31/Year 4 6 months 9 months Loeb records interest expense when the loans are repaid. As a result, interest expense of $1,500 was recorded in Year 3. If no correction is made, by what amount would Year 3 interest expense be understated?
Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid each loan on its scheduled maturity date. Term of Loan 1 year Loan A Loan B Loan C Date of Loan Amount $ 5,000 11/1/Year 2 2/1/Year 3 5/1/Year 3 15,000 8,000 Maturity Date 10/31/Year 3 7/31/Year 3 1/31/Year 4 6 months 9 months Loeb records interest expense when the loans are repaid. As a result, interest expense of $1,500 was recorded in Year 3. If no correction is made, by what amount would Year 3 interest expense be understated?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Aa 112 .
Transcribed Image Text:Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans
were at a 12% interest rate, with interest payable at maturity. Loeb repaid each loan on its scheduled maturity date.
Amount
$ 5,000
Date of Loan
11/1/Year
2
2/1/Year 3
Term of Loan
1 year
Loan A
Loan B
Loan C 5/1/Year 3
15,000
8,000
Maturity Date
10/31/Year 3
7/31/Year 3
1/31/Year 4
Loeb records interest expense when the loans are repaid. As a result, interest expense of $1,500 was recorded in Year 3.
If no correction is made, by what amount would Year 3 interest expense be understated?
All cells that can be entered as formulas need to be entered as such.
Months loan
outstanding in
6 months
9 months
2003 (correct
Date of Loar Maturity date interest expense)
11/1/02
10/31/03
2/1/03
7/31/03
5/1/03 1/31/04
10
6
8
Term of
Loan in
months
Months of
interest
expense
recorded
Correct
months vs
recorded Amount of
months
loan
Monthly
interest
Amount by
which
interest is
understated
0
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