Question

On September 1, Paisley Corp. signed a 2-year interest-bearing note payable for $100,000. The interest rate was 12%, and both principal and interest are paid at maturity. The amount of interest that is accrued on December 31, is

a)$12,000.
b)$3,000.
c)$4,000.
d)$24,000.

Answer 1

The accrued interest on Paisley Corp's 2-year interest-bearing note payable of $100,000 at a 12% interest rate for the 4 months up to December 31 is $4,000.

Step-by-step explanation:

The question asked is about calculating accrued interest on a note payable by Paisley Corp. On September 1, Paisley Corp. signed a 2-year interest-bearing note for $100,000 with a 12% interest rate, with both principal and interest being paid at maturity. The interest accrued by December 31 can be calculated by determining the amount of time between September 1 and December 31, which is 4 months (or 1/3 of a year). The interest will be 12% annual rate times the principal amount of $100,000, applied for 1/3 of a year:

Interest = Principal × Rate × Time = $100,000 × 12% × 1/3 = $100,000 × 0.12 × 0.3333 = $4,000.

Therefore, the correct answer is c) $4,000.