On 1 September 2014, Select Company borrowed $600,000 from a bank and signed a 12%, six-month note payable, with interest on the note due at maturity.

-The total amount of the current liability (including interest payable) for this loan that appears in Select Company's statement of financial position at 31 December 2014 is:

Question

On 1 September 2014, Select Company borrowed $600,000 from a bank and signed a 12%, six-month note payable, with interest on the note due at maturity.

-The total amount of the current liability (including interest payable) for this loan that appears in Select Company's statement of financial position at 31 December 2014 is:

Quizplus · Accepted Answer

The current liability for the loan is $600,000 ($500,000 principal + $100,000 interest payable). However, since the loan was taken out in September, there would be 4 months of interest accrued at the end of December (September to December).

The interest accrued for four months is calculated as follows:

Interest accrued = principal x interest rate x time 
= $500,000 x 12% x (4/12) 
= $20,000

Therefore, the total current liability for the loan at 31 December 2014 is $600,000 + $20,000 = $624,000.

On 1 September 2014, Select Company Borrowed $600,000 from a Bank