Fornelli Corporation borrowed $480,000 from Central Bank on May 31, 2013. The three-year, 7% note required annual payments of $182,904 beginning May 31, 2014. Interest expense for the year ended December 31, 2013 was
A) $19,600.
B) $22,400.
C) $33,600.
D) $0.

Question

Quizplus · Accepted Answer

Interest expense for the year ended December 31, 2013 is calculated as follows:Interest expense = Principal x Interest rate x TimeInterest expense = $480,000 x 7% x 7/12Interest expense = $19,600

Fornelli Corporation Borrowed $480,000 from Central Bank on May 31