ABC Company signed a one-year $24,000 loan payable at 8% interest on 1 May 2016.How much interest expense must be accrued on 31 May 2016?
A)$1920
B)$80
C)$160
D)$12,800

Question

Quizplus · Accepted Answer

The loan was signed on May 1, so the first month of interest expense is May. To calculate the interest expense, we need to multiply the loan amount ($24,000) by the interest rate (8%) and the fraction of the year that has elapsed (1/12 since it's only for one month). 
Interest expense = $24,000 x 8% x 1/12 = $160. Therefore, the answer is (C) $160.

ABC Company Signed a One-Year $24,000 Loan Payable at 8