Question

On September 1, 2017, Halley Co. issued a note payable to Fidelity Bank in the amount of $2,700,000, bearing interest at 10%, and payable in three equal annual principal payments of $900,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2018. At December 31, 2018, Halley should record accrued interest payable of:

Answer 1

accrued interest payable = $60,000

Step-by-step explanation:

Since the first principal payment was done on September 1, 2018, by December 31, 2018, the principal's balance = $2,700,000 - $900,000 = $1,800,000

By December 31, Halley Co. had 4 months of interest payable (September, October, November, and December), so total accrued interest payable was:

principal x interest rate x periods = $1,800,000 x 10% x (4/12) = $60,000