Question

On September 1, 2021, Daylight Donuts signed a $224,000, 8%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2022.

Daylight Donuts should report interest payable at December 31, 2021, in the amount of: (Do not round your intermediate calculations.)
a.$2,987.
b.$8,960.
c.$0.
d.$5,973.

Answer 1

d.$5,973.

interest expense 5,973 debit

interest payable 5,973 credit

Step-by-step explanation:

formula for interest expense:

principal x rate x time = interest

is important that rate and time are expressed on the same metric. In this case, as the rate is annual we express time as portion of year:

time: from September 1st to December 31th

4 months over 12 months = 4/12 = 1/3

now we can calculate the interest:

$ 224,000 x 0.08 x 1/3 = $ 5.973,33