Question

Maywood, Inc. signs a​ $17,000, 8.5%,​ six-month note dated November​ 1, 2017. The interest expense recorded for this note in 2017 will be​ ________. (Do not round any intermediate​ calculations, and round your final answer to the nearest​ dollar.)A. ​$482 B. ​$723 C. ​$241 D. ​$1,445

Answer 1

$241

Step-by-step explanation:

Of the six month tenor of the note, the period that falls into 2017 is 2 months (that is, November 1 to December 31). In addition, by default, interest rates are stated on an annual basis except indicated otherwise. Therefore, it is assumed that 8.5% rate indicated in the question is an annual rate.

The computation of the interest that falls into 2017 is as follows:

=
`Note Amount*interest rate*(number of months in 2017)/(12 months in a year)`

= $17,000 * 8.5% * 2/12

= $240.83

= approx. $241.