Innovate Company borrowed on a one-year, 10%, $150,000 note on May 1, 2015 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, 2016?

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Quizplus · Accepted Answer

The note was borrowed on May 1, 2015, and matures on May 1, 2016. The interest for the entire year (May 1, 2015, to May 1, 2016) is $15,000 (10% of $150,000). However, for the year ending December 31, 2016, only the interest from January 1, 2016, to May 1, 2016, needs to be reported, which is 4 months. The interest for 4 months is $5,000 (4/12 of $15,000).

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