On Oct.1, 2011 Bonita, Inc.signed a 1-year $75,000 note payable from First National Bank.The loan plus 6% interest is to be repaid on Sept.30, 2012.Bonita's year-end is December 31.In its 2011 financial statements Bonita will record interest expense of:
A)$375
B)$1,125
C)$4,500
D)$75,000

Question

Quizplus · Accepted Answer

To calculate the interest expense for 2011, we need to find the portion of the year that the loan was outstanding. The loan was signed on Oct. 1, 2011, which means it was outstanding for 3 months in 2011 (Oct, Nov, Dec).

Interest for 3 months at 6% annually can be calculated as:
($75,000 x 6% x 3/12) = $1,125

Therefore, the interest expense for 2011 is $1,125.

On Oct1, 2011 Bonita, Inc