On October 1, 20A, Ethan Company borrowed $10,000 on a 4-month note with an annual interest rate of 9 percent. How much interest expense should be reported for 20A, assuming that the note is paid on time and Ethan Company's accounting year coincides with the calendar year?

Question

Quizplus · Accepted Answer

To calculate the interest expense, we use the formula:

Interest Expense = Principal x Rate x Time

Where:

Principal = $10,000 
Rate = 9% per year 
Time = 4 months / 12 months = 1/3 year

Plugging in the values:

Interest Expense = $10,000 x 9% x 1/3 = $225

Therefore, the answer is B, $225.

On October 1, 20A, Ethan Company Borrowed $10,000 on a 4-Month