Question

Abardeen Corporation borrowed $90,000 from the bank on October 1, Year 1. The note had an 8 percent annual rate of interest and matured on March 31, Year 2. Interest and principal were paid in cash on the maturity date. Required a. What amount of cash did Abardeen pay for interest in Year 1

Answer 1

A) There was no cash paid in 2016 (that means $0), rather both the interest and principal were paid on March 31, 2017.

B) [(Amount x rate) / 12] x 3 months

=[(90,000 x 8%) / 12] x 3 months

= (7,200 / 12) x 3

= 600 x 3

= $1,800

C) 90,000 + 1,800 = $91,800

D) (600 x 6 months) + 90,000

= 3,600 + 90,000

= $93,600

E) 600 x 3 months

= $1,800.

Answer 2

A.No interest

B.$1,800

C.$91,800

D.$93,600

E.$1,800

Step-by-step explanation:

Abardeen Corporation

a.No interest was paid in year 1 because the nterest will be paid in Year 2 when the note matures.

b.($90,000 × 8% )

= $7,200

$7,200 × 3/12

= $1,800

c. Notes Payable + Interest Payable

$90,000+$1,800

$91,800

d.Principal + interest

$90,000+ ($90,000 × 8% × 6/12)]

$90,000+$3,600

$93,600

e. ($90,000 × 8%)

= $7,200

( $7,200 × 3/12)

$1,800