On July 8,Jones Inc.issued an $80,000,6%,120-day note payable to Miller Company.Assume that the fiscal year of Jones ends July 31.Using the 360-day year,what is the amount of interest expense recognized by Jones in the current fiscal year?

Question

Quizplus · Accepted Answer

The formula for interest expense is:

Interest Expense = Principal x Interest Rate x Time

First, we need to find the interest rate per day:

6% annual rate / 360 days per year = 0.0167 (rounded to four decimal places)

Next, we need to find how many days of the 120-day period fall within the current fiscal year:

July 8 to July 31 = 24 days
24 / 120 = 0.2 (fraction of days in current fiscal year)

Finally, we can calculate the interest expense for the current fiscal year:

Interest Expense = $80,000 x 0.0167 x 0.2 = $267.20 (rounded to nearest cent)

Therefore, the answer is C) $307.