Grace’s Gems purchased some property on December 31, 2011, for $100,000, paying $20,000 in cash and obtaining a mortgage loan for the other $80,000. The interest rate is 8% per year, with $2,925 payments made at the end of March, June, September, and December 2012.

1. What amounts should appear as interest expense on the quarterly income statements and as liabilities on the quarterly balance sheets during 2012?

2. What amount of interest expense should appear on the income statement for the year ended December 31, 2012?