Question

Universal Travel Inc. borrowed $500,000 on November 1, 2021, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on October 31, 2022. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2021, in the amount of: (Round your final answers to the nearest whole dollar.

Answer 1

Answer: $5,000

Step-by-step explanation:

Since 6% interest is to be paid on the borrowed amount of $500,000.

Therefore,

Total interest payable on $500000 is:

$500000 × (60/100) =$30,000

Then, the payable interest for

One month is:

$30,000 ÷ 12 = $2,500

Since the period between November 1, 2021 and December 31, 2021 is two (2) month intervals.

Then, 2 month interest is to be reported by Universal Travel Inc.

Therefore,

$2,500 × 2 = $5,000

Answer 2

$5,000

Step-by-step explanation:

Universal Travel Inc. should report two months worth of interest payable by December 31, 2021, because the interest began to compund on November 1, 2021 (two months earlier).

The total interest on the note is:

$500,000 x 6% = $30,000

We divide this figure by twelve to find the interest payable for each month:

$30,000 / 12 = $2,500

And finally, we multiply the number by 2 to obtain the two months worth of interest to be reported:

$2,500 x 2 = $5,000