On May 1,2012,Mink,Inc.borrowed $10,000 by issuing a 12%,3-month note and another $10,000 by issuing a 12%,6-month note.Interest expense for the month ended May 31,2012 will be ________.
A)greater on the 3-month note than the 6-month note
B)greater on the 6-month note than the 3-month note
C)$200 for both notes combined
D)$0 for both notes because no interest was paid

Question

Quizplus · Accepted Answer

Interest expense is calculated based on the principal amount, the interest rate, and the time period. For both notes, the interest for one month is calculated as follows: ($10,000 * 12% * 1/12) = $100 per note. Therefore, for both notes combined, the interest expense for May is $200. The duration of the notes does not affect the monthly interest expense calculation.