A business borrows $100,000 from a bank on July 1,2008.Under the agreement with the bank,the loan must be repaid in full on June 30,2009,with interest at 6% a year.The business wants to prepare financial statements for the year ended December 31,2008.How much interest expense should it report for that year?
A)$0
B)$3,000
C)$6,000
D)$12,000

Question

Quizplus · Accepted Answer

The interest expense for the year ended December 31, 2008 will be calculated for the six months from July 1, 2008, to December 31, 2008.

Interest expense = Principal x Rate x Time

Where, 
Principal = $100,000 
Rate = 6% per annum 
Time = 6/12 = 0.5 years

Therefore,

Interest expense = $100,000 x 6% x 0.5 = $3,000

So, the correct answer is B, $3,000.

A Business Borrows $100,000 from a Bank on July 1,2008