Question

The Southwest Clothing Company borrowed a sum of cash on October 1, 2016 and signed a note payable. The annual interest rate was 12% and the company's year Income Statement (accounting period ending December 31) reported interest expense of 1.260 € related to that note. What was the amount borrowed?

Answer 1

$42,000

Step-by-step explanation:

Calculation for the amount borrowed

Amount borrowed=$1,260/(12% x 3/12)

Amount borrowed=$1,260/0.03

Amount borrowed=$42,000

Note that October 1, 2016 to 31 December 2016 will gives us 3 months

Based on the above calculation $42,000 which is the amount borrowed x 12% x 3/12 = Interest expense amount of $1,260

Therefore the amount borrowed is $42,000