Hoo Ya Corporation issued a one-year 4% $180000 note on August 31 2016. Interest expense for the year ended December 31 2016 was

Question

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The formula for calculating interest expense is Principal x Rate x Time. Here, the principal is $180000, the rate is 4% and the time period is from August 31, 2016 to December 31, 2016.

We need to calculate the number of months or fraction thereof between August 31, 2016 and December 31, 2016.

August has 31 days, September has 30 days, October has 31 days, November has 30 days and December has 31 days. Therefore, the total number of days between August 31 and December 31 is 31+30+31+30+31=153 days.

In terms of months, this is 5 months and 2 days. Therefore, the interest expense for the period is:

Interest expense = $180000 x 4% x (5/12) = $2400

Hoo Ya Corporation Issued a One-Year 4% $180000 Note on August