If cash is borrowed on a $55,800, 9-month, 10% note on August 1, how much interest expense would be incurred by December 31?<\/p>\n\n\n\n
The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n To calculate the interest expense incurred by December 31<\/strong> on a \\$55,800<\/strong>, 9-month<\/strong>, 10% note<\/strong> borrowed on August 1<\/strong>, we need to use the formula for simple interest<\/strong>:<\/p>\n\n\n\n $$ $$ $$ When a company borrows money using a note payable, interest typically accrues over time and is recognized as an expense as it is incurred. In this case, the company borrowed \\$55,800<\/strong> on August 1<\/strong> under the terms of a 9-month, 10% annual interest note<\/strong>. Although the full term of the note spans 9 months, the company must report how much interest expense it has incurred by the end of the accounting period<\/strong>, which is December 31<\/strong>.<\/p>\n\n\n\n To calculate how much interest has accrued by December 31, you first identify how many months have passed since the note was issued. From August 1 to December 31<\/strong>, there are 5 months<\/strong> (August, September, October, November, and December).<\/p>\n\n\n\n Because the interest rate is annual (10%), you must convert the time to a fraction of the year: 5\/12<\/strong>. Using the simple interest formula:<\/p>\n\n\n\n $$ you plug in:<\/p>\n\n\n\n $$ This amount represents the interest expense<\/strong> that must be recorded on the income statement as of December 31<\/strong>. It’s also included as an accrued liability<\/strong> (interest payable) on the balance sheet if the note hasn\u2019t been paid yet. The remaining interest for the note\u2019s total 9-month term will continue accruing into the next accounting period.<\/p>\n","protected":false},"excerpt":{"rendered":" If cash is borrowed on a $55,800, 9-month, 10% note on August 1, how much interest expense would be incurred by December 31? The correct answer and explanation is : To calculate the interest expense incurred by December 31 on a \\$55,800, 9-month, 10% note borrowed on August 1, we need to use the formula […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-210978","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/210978","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=210978"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/210978\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=210978"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=210978"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=210978"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n\n\n\nInterest Formula:<\/strong><\/h3>\n\n\n\n
\\text{Interest} = \\text{Principal} \\times \\text{Rate} \\times \\text{Time}
$$<\/p>\n\n\n\n\n
\\text{Interest} = 55,800 \\times 0.10 \\times \\frac{5}{12}
$$<\/p>\n\n\n\n
\\text{Interest} = 55,800 \\times 0.10 \\times 0.4167 = 55,800 \\times 0.04167 \\approx \\boxed{2,325.09}
$$<\/p>\n\n\n\n
\n\n\n\n\u2705 Correct Answer: \\$2,325.09<\/strong><\/h3>\n\n\n\n
\n\n\n\n\ud83d\udcd8 Explanation (Approx. 300 Words):<\/strong><\/h3>\n\n\n\n
\\text{Interest} = \\text{Principal} \\times \\text{Rate} \\times \\text{Time}
$$<\/p>\n\n\n\n
55,800 \\times 0.10 \\times \\frac{5}{12} = 2,325.09
$$<\/p>\n\n\n\n