Fornelli Corporation borrowed $800,000 from Central Bank on May 31, 2016. The three-year, 7% note required annual payments of $304,840 beginning May 31, 2017. Interest expense for the year ended December 31, 2016 was
A)$32,667.
B)$37,333.
C)$56,000.
D)$0.

Question

Quizplus · Accepted Answer

The correct answer is A because the interest expense for the year ended December 31, 2016 is $32,667. This is calculated by multiplying the principal amount of $800,000 by the annual interest rate of 7%, which is $56,000. Then, we divide this amount by 12 to get the monthly interest expense of $4,666.67. Finally, we multiply this amount by the number of months in the year ended December 31, 2016, which is 7, to get the interest expense for the year ended December 31, 2016 of $32,667.

Fornelli Corporation Borrowed $800,000 from Central Bank on May 31