Question

Marigold borrowed $692000 on October 1, 2020 and is required to pay $716000 on March 1, 2021. What amount is the note payable recorded at on October 1, 2020 and how much interest is recognized from October 1 to December 31, 2020?

Answer 1

The correct answer is $14,400.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Amount borrowed = $692,000

Required to pay = $716,000

Time period = Oct.1,2020 - Mar.1,2021 = 5 months

So, Total interest = $716,000 - $692,000 = $24,000

So, we can calculate the interest amount from Oct.1 to Dec.31 by using following formula:

Interest amount for 3 months = (Total interest ÷ Time period) × 3

By putting the value, we get

Interest amount for 3 months = ( $24,000 ÷ 5 ) × 3

= $14,400