On September 1, 2020, Coffee Ltd. issued a $ 1,800,000, 12% note to Humungous Bank, 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, 2021. At December 31, 2021, Coffee should record accrued interest payable of

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The accrued interest payable at December 31, 2021, is calculated on the remaining principal after the first payment. After the first payment of $600,000 on September 1, 2021, the remaining principal is $1,200,000. The interest for one year on the remaining principal at the note's interest rate (12%) would be $144,000. However, the accrued interest payable is for the last four months of the year (September to December), which is one-third of a year. Therefore, the accrued interest is one-third of $144,000, which is $48,000.