Determine an audit estimate of the amount of interest

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Question

You are the auditor. You find the information on this line of credit in the following table: you inquired at First National Bank and learned that Cogburn Company's loan agreement specifies payment on the first day of each month for the interest due on the provious month's outstanding balance at the rate of prime plus 1.5 percent.

The bank gave you a report that showed the prime rate of interest was 8.5 percent for the first six months of the year and 8.0 percent for the last six months.

COGBURN COMPANY NOTES PAYABLE BALANCES DATE BALANCES

1-Jan 150,000

1-Feb 200,000

1-Mar 200,000

1-Apr 225,000

1-May 285,000

1-Jun 375,000

1-Jul 375,000

1-Aug 430,000

1-Sep 290,000

1-Oct 210,000

1-Nov 172,000

1-Dec 95,000

 3,007,000

Required: Determine an audit estimate of the amount of interest expense you expect to find as the balance of the interest expense account related to these notes payable.

(do not round intermediate computations. Round your final answers to the nearest whole dollar amount)

 

Reference no: EM132354510

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