Question

On January 10, Chen Co. issued an $80,000, 6%, 90-day note payable to Rao Co. Using a 360-day year, what is the total interest expense of the note?a. $4,800b. $480c. None of these choices are correct.d. $1,200

Answer 1

d. $1,200

Step-by-step explanation:

The computation of the interest expense is shown below:

= Principal × rate of interest × number of days ÷ (total number of days in a year)

= $80,000× 6% × (90 days ÷ 360 days)

= $1,200

We simply apply the simple interest formula

Since the number of days and the total number of days are given so we considered the same for the computation part.