A company borrowed $500,000 on a one-year, 10% note on October 1, 2018, with interest and principal to be paid at maturity. How much interest should be reported on the income statement for the year ending December 31, 2019?

Question

Quizplus · Accepted Answer

The note only accrued interest for three months in 2018 (October, November, and December), so the interest expense for the year ending December 31, 2019 would be for nine months. 9/12 of the interest on the note would be: 
($500,000 x 0.10) x (9/12) = $37,500. Therefore, the correct choice is (D).

A Company Borrowed $500,000 on a One-Year, 10% Note on October