Question

Included in Oriole Company's balance sheet at June 30, 2021, is a 10%, $4,100,000 note payable. The note is dated October 1, 2019, and is payable in three equal annual payments of $2,050,000 plus interest. The first interest and principal payment was made on October 1, 2020.

In Oriole's June 30, 2021 balance sheet, what amount should be reported as accrued interest payable for this note?

Answer 1

accrued interest for the note: 307,500

Step-by-step explanation:

installment of 2,050,000

outstanding principal 4,100,000

Accrued interest from October to June 30th: 9 months

To get the interest we use the folowing formula:

principal x rate x time = interest

Being time and rate express in the same metric that is, the rate is annual therefore, time is expressed as the portion of a year.

4,100,000 x 0.10 x 9/12 = 307,500