Mission Corp. borrowed $50,000 cash on April 1, 2016, and signed a one-year 12%, interest-bearing note payable. The interest and principal are both due on March 31, 2017. The amount of interest expense for the year ended December 31, 2016 is:

Question

Quizplus · Accepted Answer

To calculate the interest expense for the year ended December 31, 2016, we need to use the following formula:

Interest Expense = Principal Amount x Interest Rate x Time

Here, the principal amount is $50,000, the interest rate is 12%, and the time is from April 1, 2016 to December 31, 2016, which is 9 months.

Therefore, the interest expense for the year ended December 31, 2016, can be calculated as follows:

Interest Expense = $50,000 x 12% x 9/12
                 = $4,500

Hence, the correct answer is B, $4,500.