Youngblood Company borrowed $100,000 on a one-year, 10% note on October 1, 2012, with interest and principal to be paid at maturity. How much interest should Stone Company report on its income statement for the year ending December 31, 2013?

Question

Quizplus · Accepted Answer

Interest is calculated using the simple interest formula: Principal x Rate x Time. In this case, the principal is $100,000, the rate is 10%, and the time is 15 months (from October 1, 2012 to December 31, 2013). 
So, the interest expense for Stone Company will be:
$100,000 x 10% x (15/12) = $7,500. 
Therefore, the correct answer is D.

Youngblood Company Borrowed $100,000 on a One-Year, 10% Note on October