Universal Travel Inc. borrowed $500,000 on November 1, 2013, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on October 31, 2014. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2013, in the amount of:

Question

Quizplus · Accepted Answer

The interest expense for the note is calculated as follows:
Principal amount = $500,000
Interest rate = 6%
Time period = 2 months (November 1, 2013, to December 31, 2013)
Interest expense = Principal x Interest rate x Time period
= $500,000 x 6% x 2/12
= $5,000

Therefore, Universal Travel Inc. should report interest payable at December 31, 2013, in the amount of $5,000.