Question

2. Jamal borrowed $100,000 on July 1, 2018, and signed a four-year note bearing interest at 8%. Interest is payable in full at maturity on June 30, 2020. Jamal should report interest expense at December 31, 2018, of: a. $0 b. $4,000 c. $8,000 d. $32,000

Answer 1

b. $4,000

Step-by-step explanation:

Amount of Loan = $100,000

Interest rate = 8% per year

Interest rate = 8% x ( 6 / 12 )

Interest rate = 4% every six months

On December 31 six months has been passed after issuance.

Interest Expense = $100,000 x 4%

Interest Expense = $4,000

Jamal should report $4,000 as interest expense. So correct answer is b. $4,000.