Mission Corp.borrowed $50,000 cash on April 1,2019,and signed a one-year 12%,interest-bearing note payable.The interest and principal are both due on March 31,2020.
-Assume that the appropriate adjusting entry was made on December 31,2019 and that no adjusting entries have been made during 2020.What is the amount of interest expense to be recorded when the interest and principal are paid on March 31,2020?

Question

Mission Corp.borrowed $50,000 cash on April 1,2019,and signed a one-year 12%,interest-bearing note payable.The interest and principal are both due on March 31,2020. 
-Assume that the appropriate adjusting entry was made on December 31,2019 and that no adjusting entries have been made during 2020.What is the amount of interest expense to be recorded when the interest and principal are paid on March 31,2020?

Quizplus · Accepted Answer

The interest for one year on a $50,000 loan at 12% is $6,000. Since the loan was taken out on April 1, 2019, and the interest for the year ending December 31, 2019, would have been adjusted, the interest expense to be recorded for the period from January 1, 2020, to March 31, 2020, is for 3 months. Therefore, the interest expense is $6,000 * 3/12 = $1,500.