Use the following information for questions. On December 31, 2014, Diaz Corp.is in financial difficulty and cannot pay a $900,000 note with $90,000 accrued interest payable to Cameron Ltd., which is now due.Cameron agrees to accept from Diaz equipment that has a fair value of $435,000, an original cost of $720,000, and accumulated depreciation of $345,000.Cameron also forgives the accrued interest, extends the maturity date to December 31, 2017, reduces the face amount of the note to $375,000, and reduces the interest rate to 6%, with interest payable at the end of each year.
-Diaz should record interest expense for 2017 of
A)$0.
B)$22,500.
C)$45,000.
D)$67,500.

Question

Quizplus · Accepted Answer

The interest expense for 2017 is calculated on the reduced note amount of $375,000 at the reduced interest rate of 6%. Therefore, the interest expense is $375,000 * 6% = $22,500.

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