The Pita Pit borrowed $100,000 on November 1,2012,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2013.In connection with this note,The Pita Pit should report interest expense at December 31,2012,in the amount of:

Question

Quizplus · Accepted Answer

Interest expense is calculated using the formula: 
Interest Expense = Principal x Interest Rate x Time

From November 1, 2012 to December 31, 2012, there are 2 months (2/12 of a year) elapsed.

Therefore, Interest Expense = $100,000 x 12% x (2/12) = $2,000.

Thus, the correct answer is C) $2,000.

The Pita Pit Borrowed $100,000 on November 1,2012,and Signed a Six-Month