A company borrowed $500,000 on a one-year, 10% note on October 1, 2013, with interest and principal to be paid at maturity. How much interest should be reported on the income statement for the year ending December 31, 2014?

Question

Quizplus · Accepted Answer

Since the note is for one year and the company borrowed it on October 1, 2013, the maturity date would be September 30, 2014. Therefore, the note was outstanding for only three months in 2013 and nine months in 2014.

The interest on the note would be calculated as:

Interest = Principal x Rate x Time

Interest = $500,000 x 0.1 x 9/12

Interest = $37,500

Thus, the correct answer is D, $37,500.

A Company Borrowed $500,000 on a One-Year, 10% Note on October