Phipps Company borrowed $25,000 cash on October 1, 2014, and signed a nine-month, 8% interest-bearing note payable with interest payable at maturity. The amount of interest expense to be reported during 2015 is which of the following?
A) $1,000.
B) $300.
C)$500.
D)$750.

Question

Quizplus · Accepted Answer

The note was signed on October 1, 2014, and is due nine months later on July 1, 2015. Interest is payable at maturity, so the interest expense for 2015 is the interest that accrues from January 1, 2015, to July 1, 2015. The annual interest rate is 8%, so the interest expense for 2015 is $25,000 x 8% x 6/12 = $1,000.

Phipps Company Borrowed $25,000 Cash on October 1, 2014, and Signed