On 1 November of the current year, Garcia Company borrowed $50,000 by issuing a 9%, six-month note payable, all due at maturity date. Interest expense on this note to be recognized during the current year amounts to:

Question

Quizplus · Accepted Answer

The formula to calculate interest expense on a note payable is:

Interest expense = principal x annual interest rate x time

In this case, the principal is $50,000, the annual interest rate is 9%, and the time period is 6/12 or 0.5 years. Plugging these values into the formula, we get:

Interest expense = $50,000 x 0.09 x 0.5 = $2,250

However, since the note is only outstanding for half of the year, we need to prorate this amount by dividing it by 2:

Interest expense = $2,250 / 2 = $1,125

Therefore, the answer is B) $750, which is half of the interest expense recognized during the current year.

On 1 November of the Current Year, Garcia Company Borrowed