Question

Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with interest and principal to be paid at maturity. How much interest expense will Longitude report on its income statement for the year ending December 31

Answer 1

Step-by-step explanation:

The note was issued on May 1, so the company will have held the note for 8 months by December 31. The annual interest rate is 10%, so the monthly interest rate is 10% / 12 = 0.8333%. The interest expense for the year ending December 31 is therefore $150,000 x 0.8333% x 8 = $9,999.99, which can be rounded to $10,000.