On November 1 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:
A)$500.
B)$750.
C)$1,500.
D)$4,500.

Question

Quizplus · Accepted Answer

The formula to calculate interest expense on a note payable is:
Principal x Interest Rate x Time
where Time is the fraction of the year that the note is outstanding. In this case, the time period is 6/12 or 0.5.
Therefore, the interest expense is:
$50,000 x 0.09 x 0.5 = $2,250/ year
However, since the note is only outstanding for half the year, the interest expense for the current year will be:
$2,250/2 = $1,125
Therefore, the correct answer is B, $750.

On November 1 of the Current Year,Garcia Company Borrowed $50,000