Final answer:
The interest expense for ABC Company's note payable for December 31, 2013, is $4,800, which was calculated by multiplying the principal amount of $80,000 by the annual interest rate of 9% and the fraction of the year over which interest was accrued (8 months).
So, the correct answer is option 2. $4,800.
Step-by-step explanation:
To calculate the interest expense for ABC Company's note payable for December 31, 2013, we must first determine the time frame over which the interest needs to be calculated. The note was signed on May 1, 2013, so interest will accrue from that date until December 31, 2013, which equates to 8 months. Given the information, the formula to calculate interest is:
Interest Expense = Principal Amount × Annual Interest Rate × Time (in years)
The annual interest rate is 9%, and the principal of the note payable is $80,000. To convert the time frame into years, we divide the number of months by 12 (8 months / 12 = 0.6667 years).
Plugging the numbers into the formula gives us:
Interest Expense = $80,000 × 9% × 0.6667 years
Interest Expense = $80,000 × 0.09 × 0.6667
Interest Expense = $4,800
The interest expense for December 31, 2013, is therefore $4,800.
So, the correct answer is option 2. $4,800.