On June 1,2012,a company borrows $100,000 on a 10% note due to a bank in one year.What amount of interest expense is reported for the year ending December 31,2012?
A) $5,000
B) $5,833
C) $1,000
D) $10,000

Question

Quizplus · Accepted Answer

The interest expense is calculated using the formula: principal x annual interest rate x time. In this case, the principal is $100,000, the annual interest rate is 10%, and the time is 7/12 (since the note was issued on June 1 and the year ends on December 31, there are 7 months left in the year). 
Thus, the interest expense is calculated as: $100,000 x 10% x 7/12 = $5,833. Therefore, the correct answer is B.

On June 1,2012,a Company Borrows $100,000 on a 10% Note