Question

On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to Still Co. Assume that the fiscal year of Acme Co. ends June 30. What is the amount of interest expense recognized by Acme in the current year?

Answer 1

Acme Co. would recognize an interest expense of $288.22 for the current fiscal year for the note payable issued to Still Co.

Step-by-step explanation:

To determine the amount of interest expense recognized by Acme Co. in the current year for an $80,000 note payable at 6% for 120 days, we need to calculate the interest for the period from June 8 to June 30, because their fiscal year ends on June 30. The formula for interest is principal × interest rate × time (in terms of a year). For this calculation, time is the number of days from issuance to fiscal year-end, over the total days in the year.

First, calculate the number of days from June 8 to June 30, which is 22 days. Next, apply the formula:

• Principal: $80,000
• Interest rate: 6% (0.06 as a decimal)
• Time: 22/365 (since it's not a leap year)

Now, calculate the interest: $80,000 × 0.06 × (22/365) = $288.22

Therefore, the interest expense recognized by Acme Co. in the current year is $288.22.