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. Assume that the appropriate adjusting entry was made on December 31, 2016 and that no adjusting entries have been made during 2017. What is the amount of interest expense to be recorded when the interest and principal are paid on March 31, 2017?

Question

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The interest for the entire year is $6,000 (12% of $50,000). By December 31, 2016, 9 months of interest ($4,500) would have been accrued. Therefore, the remaining interest for January to March 2017 (3 months) is $1,500.