The United Shipping Co. made an adjusting entry accruing interest for $800 on a note payable for the month of January. The note required 12% per annum on the principal. The principal amount of the note payable must have been:
A) $7,000.
B) $9,600.
C) $80,000.
D) $10,800.

Question

Quizplus · Accepted Answer

The interest for one month is $800. The annual interest rate is 12%, so the monthly rate is 1% (12%/12 months). Therefore, the principal amount is $800 / 0.01 = $80,000.