Question

the pita pit borrowed $100,000 on november 1, 2024, and signed a six-month note bearing interest at 12%. principal and interest are payable in full at maturity on may 1, 2025. in connection with this note, what is the amount of interest expense that pita pit should report in its income statement for the year ended december 31, 2024? multiple choice $2,000 $1,000 $0 $6,000

Answer 1

The amount of interest expense that Pita Pit should report in its income statement for the year ended December 31, 2024 is $2,000.

Step-by-step explanation:

The Pita Pit borrowed $100,000 on November 1, 2024, and signed a six-month note with an interest rate of 12%. The principal and interest are payable in full at maturity on May 1, 2025. To calculate the amount of interest expense that Pita Pit should report in its income statement for the year ended December 31, 2024, we need to determine the time period from November 1, 2024, to December 31, 2024. This is a period of 2 months (November and December). The interest expense can be calculated using the formula:

Interest Expense = Principal x Interest Rate x Time

Interest Expense = $100,000 x 0.12 x (2/12)

Interest Expense = $2,000

Therefore, Pita Pit should report $2,000 as the amount of interest expense in its income statement for the year ended December 31, 2024.

Answer 2

Pita Pit should report $4,000 as the amount of interest expense in its income statement for the year ended December 31, 2024.

Step-by-step explanation:

To calculate the amount of interest expense that Pita Pit should report in its income statement for the year ended December 31, 2024, we need to determine the interest accrued from November 1, 2024, to December 31, 2024.

The time period is 2 months (from November 1 to December 31), which is 1/3 of the total 6-month note period.

Multiplying the principal amount of $100,000 by the interest rate of 12% and dividing by 3 will give us the interest expense for that 2-month period:

Interest Expense = Principal * Interest Rate * (2/6)

= $100,000 * 0.12 * (2/6)

= $4,000

Therefore, Pita Pit should report $4,000 as the amount of interest expense in its income statement for the year ended December 31, 2024.