On September 1, 2014, Halley Co. issued a note payable to Fidelity Bank in the amount of $1,800,000, bearing interest at 10%, and payable in three equal annual principal payments of $600,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2015. At December 31, 2015, Halley should record accrued interest payable of

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The accrued interest payable at December 31, 2015, would be calculated on the remaining principal after the first payment. Since the first payment of $600,000 was made on September 1, 2015, the remaining principal for the rest of the year would be $1,200,000 ($1,800,000 - $600,000). The interest for four months (September to December) on this amount at 10% per annum would be: $1,200,000 * 10% * (4/12) = $40,000.