Final answer:
The interest on a 40,000, 12%, 3-month interest-bearing loan is calculated using the formula Principal * Interest Rate * (Time / 12), which equates to $800 for two months.
Step-by-step explanation:
To calculate the interest on a 40,000, 12%, 3-month interest-bearing loan accepted on November 1, and record the entry by December 31st, you should use the formula for simple interest. The correct formula which incorporates the principal, interest rate, and period is Principal * Interest Rate * (Time / 12). This formula is represented in option b) and it calculates the amount of interest accrued over a specific period, where time is expressed in months for a yearly interest rate. In this instance, the formula becomes:
- Interest = Principal × Interest Rate × (Time / 12)
- Interest = 40,000 × 0.12 × (2 / 12)
- Interest = 800
This calculation indicates that the interest for two months (November and December) at a 12% annual interest rate amounts to $800.