On October 1, 2012, Glover Company borrowed $200,000 on a two-year, 12% note, with interest and principal to be paid at maturity. How much interest expense will Glover report on its income statement for the year ending December 31, 2012?

Question

Quizplus · Accepted Answer

Since the note was borrowed on October 1, 2012, there are only three months left until December 31, 2012. To calculate the interest expense for this period, we can use the following formula:

Interest expense = Principal x Annual interest rate x Time

Time = (number of days in the period) / (number of days in the year)

Time = (92 days) / (365 days)

Time = 0.2521 (rounded to four decimal places)

Interest expense = $200,000 x 12% x 0.2521

Interest expense = $6,042

Therefore, the answer is A) $6,000 (rounded to the nearest dollar).

On October 1, 2012, Glover Company Borrowed $200,000 on a Two-Year