Morrison Corporation borrowed $45,000 from Commercial Bank on June 1 of the current year.The bank required 9% interest.Interest will be paid every three months until the 9-month note is paid.What is the total Interest Expense and the Interest Payable at December 31 of the current year?

Question

Quizplus · Accepted Answer

To calculate the total interest expense and interest payable, we need to find out the interest for each quarter and add them up.

The formula for simple interest is:

Interest = Principal x Rate x Time

Here, Principal = $45,000, Rate = 9% per annum and Time = 3 months or 1/4 of a year.

First quarter interest:

Interest = $45,000 x 9% x 1/4 = $1,012.50

Second quarter interest:

Interest = $45,000 x 9% x 1/4 = $1,012.50

Third quarter interest:

Interest = $45,000 x 9% x 1/4 = $1,012.50

Fourth quarter interest:

Interest = $45,000 x 9% x 1/4 = $1,012.50

Total interest expense = $1,012.50 + $1,012.50 + $1,012.50 + $1,012.50 = $4,050

Since the interest is paid every quarter, the interest payable at December 31 will be equal to the interest for the fourth quarter, which is $1,012.50.

Therefore, the correct answer is C. Interest Expense $2,362.50; Interest Payable $337.50.

Morrison Corporation Borrowed $45,000 from Commercial Bank on June 1