Question

"60. To compute interest expense on a note for an adjusting entry, the formula is (principal × annual rate × a fraction). The numerator and denominator of the fraction are:

Numerator Denominator"
t
f

Answer 1

To calculate interest expense on a note, use the principal, annual rate, and a fraction representing the time elapsed in the period over the total time units in a year. The numerator is the time units that have passed, and the denominator is the total number of time units in a year.

Step-by-step explanation:

To compute interest expense on a note for an adjusting entry, the formula is (principal × annual rate × a fraction). The numerator and denominator of the fraction represent the time the interest has been accruing within a certain period, such as months or days, out of the total time units in the year.

• The numerator is the number of time units (like months or days) that have elapsed in the current fiscal period.
• The denominator is the total number of time units in one year (which is 12 for months or 365/366 for days).

For example, if you're calculating interest for half a year, the fraction would be 6/12 for months, or approximately 182/365 for days, if you're assuming a common year.

Using other formulas, we can derive the interest rate using the simple interest formula, Interest = Principal × rate × time, as seen in the provided reference examples.