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How much interest expense associated with the loan

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Question - On October 1, 2021, Smith Co. borrows $400,000 from a bank. This loan will be used to fund purchase orders, which is an operating activity of the Company. The loan is due on September 30, 2024 (three years later), carries a 5% annual interest rate, and pays interest annually {i.e., on September 30, 2022, September 30, 2023, and September 30, 2024).

Required -

a. How much interest expense associated with the loan must Smith record for the year ended December 31, 2021, if any?

b. How much cash, in total (principal and interest), will Smith pay the bank over the life of the loan?

Reference no: EM133156934

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