Determine how much interest expense the company will include in the income statements and the amount of the liability the company will report in the balance sheets for this note for 2021 and 2022. (Do not round intermediate calculations. Round your answers to the nearest whole dollars.) 2021 2022 Interest expense $2,904 $3,252 Liability amount $27,104 $23,852

To find the interest expense, first get the present value of the note.

2021 interest                                                      2022 Interest

Present value = 35,000 / (1 + 12%)³                   = 12% * (24,912 + 2,989)

= $24,912                                                           = $3,348

                                                                        2021 interest is added because

Interest = 12% * 24,912                                    it is now part of the liabilities.

= $2,989

2021 Liability

= Present value of Note payable + Interest for the year

= 24,912 + 2,989

= $‭27,901‬

2022 Liability

= 27,901 + 3,348

= $‭31,249‬

Figures are different from yours as yours lacks the complete details so I used a similar question.

one of the appeals of a sole proprietorship is that business expenses are kept separate from your personal income tax return