ABC Company signed a one-year $12,000 note at 8% interest on May 1, 2010. If the company paid the note in full on December 31, 2010, they would owe the bank $12,640. How much interest expense must be accrued on December 31, 2010?
A) $960
B) $320
C) $640
D) None of the above

Question

Quizplus · Accepted Answer

The interest expense for the period from May 1, 2010, to December 31, 2010, is calculated as follows: $12,000 * 8% * (8/12) = $640. This is because the note was held for 8 months within the year, and the interest rate is annual.

ABC Company Signed a One-Year $12,000 Note at 8% Interest