Final answer:
The interest payable on February 1, 2021, is calculated based on the 14% annual interest rate on the $160,000 note. The bi-monthly interest amount comes to $3,733.34, which is the amount that will be debited to interest payable on this date.
Step-by-step explanation:
On October 1, 2020, a business signed a 14% six-month note for $160,000. Interest is due bi-monthly, which means interest is payable every two months, and the principal amount is due at maturity. To calculate the interest payable on February 1, 2021, we use the interest rate (14%) applied to the principal amount ($160,000) and adjust it for the two-month period between December 1, 2020, and February 1, 2021.
Interest payable calculation is as follows:
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- Annual interest: $160,000 × 14% = $22,400
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- Monthly interest: $22,400 / 12 = $1,866.67
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- Bi-monthly interest payable: $1,866.67 × 2 = $3,733.34
Therefore, the journal entry on February 1, 2021, would include a debit to interest payable for $3,733.34.