On October 1, 2011, Railways Corp. signed a $10,000, 5%, 5-year note payable. The note and the interest will be paid when the note comes due. Assuming Railways has a calendar year-end, how much interest expense should Railways record on this note payable in 2011?

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Quizplus · Accepted Answer

The interest expense for 2011 would be calculated for 3 months (October, November, December) since the note was signed on October 1, 2011. The annual interest is $10,000 * 5% = $500. For 3 months, it would be $500 * 3/12 = $125.