Innovate Company borrowed on a one-year, 10%, $150,000 note on May 1, 2014 with interest and principal to be paid at maturity.How much interest should Innovate Company report on its income statement for the year ending December 31, 2015?

Question

Quizplus · Accepted Answer

The interest for the period from May 1, 2014 to December 31, 2014 (8 months) is calculated as $150,000 * 10% * (8/12) = $10,000. However, the question asks for the interest for the year ending December 31, 2015. Since the note matures on April 30, 2015, the interest for the remaining 4 months (January to April 2015) is $150,000 * 10% * (4/12) = $5,000.

Innovate Company Borrowed on a One-Year, 10%, $150,000 Note on May