Universal Travel,Inc.borrowed $500,000 on November 1,2012,and signed a twelve-month note bearing interest at 6%.Principal and interest are payable in full at maturity on October 31,2013.In connection with this note,Universal Travel,Inc.should report interest payable at December 31,2012,in the amount of:

Question

Quizplus · Accepted Answer

The interest payable on the note can be calculated using the simple interest formula:

Interest = Principal x Rate x Time

Where: 
Principal = $500,000 
Rate = 6% 
Time = 2 months (from November 1 to December 31)

So, Interest = $500,000 x 6% x (2/12) = $5,000

Therefore, the correct answer is choice C. Universal Travel, Inc. should report interest payable at December 31, 2012, in the amount of $5,000.