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 in 2013 for the amount of:

Question

Quizplus · Accepted Answer

Interest expense is calculated as the product of the principal, the interest rate, and the time. In this case, the principal is $100,000, the interest rate is 12%, and the time is 6 months (or 0.5 years). Therefore, the interest expense is $100,000 * 0.12 * 0.5 = $6,000. However, since the note is payable in full at maturity, no interest expense is recognized until the maturity date. Therefore, the correct answer is $0.

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