Question

In its cash flow statement for the current year, Fox Co. reported cash paid for interest of $70,000. Fox did not capitalize any interest during the current year. Decreases occurred in several balance sheet accounts as follows:

Accrued interest payable $17,000

Prepaid interest 23,000

In its income statement for the current year, what amount should Fox report as interest expense?

Answer 1

Answer:

$76,000

Explanation:

The calculation of the interest expense is shown below:

= Reported amount of cash paid for interest + Decrease in prepaid interest - decrease in accrued interest payable

= $70,000 + $23,000 - $17,000

= $76,000

The decrease in prepaid interest is classified as a current asset and the  accrued interest payable is current liabilities and we know that the rise in current assets and a decline in current liabilities are excluded, while the decline in current assets and an increase in current liabilities are included.