The graph shows Huli Corp.’s interest expense and interest paid for the period 20X1 to 20X6. Huli Corp.’s overall debt composition has not changed in the period shown. The debt includes an operating line of credit and a term loan. Principal on the term loan is not due until 20X7.
In 20X6 Huli Corp. purchased expensive equipment for which it needed to use general borrowed money. On 1 February 20X6 the equipment was purchased from a supplier located in New Zealand. The equipment was immediately shipped. The equipment arrived in mid-May. The equipment was installed two weeks later. It then took four weeks to test the equipment and synchronize it with Huli Corp.’s existing system. The equipment was finally put into use on 1 July 20X6.

Required:
Interpret the graph and explain the reason for the change in pattern of interest expense compared to interest paid in 20X6.

Transcribed Image Text:

Amount $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 20X1 20X2 20X3 Year Interest expense Interest paid Hull Corp. Interest Expense and Interest Paid, 20X1-20X6 20X4 20X6