Saturn Inc.signed a one-year $48,000 note payable at 8% interest on May 1,2014.If Saturn Inc.only adjusts its accounts once a year at year-end,how much interest expense was accrued on December 31,2014?

Question

Quizplus · Accepted Answer

Since Saturn Inc. only adjusts its accounts once a year at year-end, the accrued interest at December 31, 2014 would be for the 8 months from May 1 to December 31.

To calculate the accrued interest, we can use the formula:

Interest expense = Principal x Rate x Time

where: 
Principal = $48,000 
Rate = 8% = 0.08 
Time = 8/12 (since there are 8 months between May 1 and December 31) = 0.67

Plugging in the numbers: 
Interest expense = $48,000 x 0.08 x 0.67 = $2,560

Therefore, the answer is C) $2,560.