Andrews Corporation's liability account balances at June 30, 2013, included a 10 percent note payable.The note is dated October 1, 2011, and carried an original principal amount of $600,000.The note is payable in three equal annual payments of $200,000 plus interest.The first interest and principal payment was made on October 1, 2012.In Andrews' June 30, 2013, balance sheet, what amount should be reported as Interest Payable for this note?
A)$10,000
B)$15,000
C)$30,000
D)$45,000
E)None of these answers is correct.

Question

Quizplus · Accepted Answer

The interest payable for the note can be calculated as:
Interest expense = Principal amount × Interest rate × Time
where Time = Number of days between the last payment date (October 1, 2012) and the end of the accounting period (June 30, 2013) ÷ Number of days in a year.

Time = (June 30, 2013 - October 1, 2012) ÷ 365 = 273 ÷ 365 = 0.7486

Interest expense = $400,000 × 0.10 × 0.7486 = $29,944

Since the interest payment is due with the principal payment on October 1 each year, the interest payable at June 30, 2013, would be $30,000 ($29,944 rounded to the nearest dollar). Therefore, the correct answer is C.

Andrews Corporation's Liability Account Balances at June 30, 2013, Included