[nshah1824]

For anyone that went through the practice test on AICPA’s website, can you please guide me how they arrived at the interest expense in the last sim in testlet 3? It was about Oak Co. “Oak Co. is preparing its financial statements as of and for the year ended December 31, year 5. Review the exhibits above to identify any adjustments required to the draft income statement for the year ended December 31, year 5.”

I need help figuring out interest expense, income tax benefit , and the total assets and total liabilities. For some reason I’m drawing a blank on how to get the numbers they got.

[chandler]

Ah, so I had to look back and figure out and see what the numbers were, but here is how you do it:
A. First 6 months accrual: $10,000,000*3.75%*(1/2)=$187,500 (Beginning Principal * LIBOR Rate +2.5% * 50% of one-year)
B. Next 6 months accrual: $9,000,000 *4.00%* (1/2)= $180,000 (Same as above, but new LIBOR rate and principal is paid down $1,000,000 each 6 months per the question).

Total Interest expense for the year is $367,500 thus an adjustment of $11,250 is necessary. Let me know if this piece gets you there or you need help on the rest.

[Author]

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