Question

On September 1, Joe's Painting Service borrows $100,000 from National Bank on a 4-month, $100,000, 6% note. The entry by Joe's Painting Service to record payment of the note and accrued interest on January 1 is:

Answer 1

interest = 2,000

Step-by-step explanation:

We will calculate the interest on the note:

Rembemer: Notes use simple interest

`Principal * rate * time = interest`

Is important that time and rate are expressed in the same measurement.

rate are generally expressed annually. so we must express time on years too.

this note is a 4 month note, we should convert 4 month in years:

1 years has 12 month

X year has 4 month

X = 4/12 = 1/3 of a year

Finally the rate is express in percent, we should divide by 100 to get the decimal:

6% = 6/100 = 0.06

`100,000 * 0.06* 1/3 = interest`

interest = 2,000