Question

On September 1, Year 1, Brok Co. issued a note payable to Federal Bank in the amount of $900,000, bearing interest at 12%, and payable in three equal annual principal payments of $300,000. On this date, the bank’s prime rate was 11%. The first interest and principal payment was made on September 1, Year 2. At December 31, Year 2, Brok should record accrued interest payable of:

Answer 1

Amount = $900,000

Bearing interest = 12%

Annual principal payments = $300,000

Bank prime rate = 11%

To find:

Accrued interest payable

Solution:

The calculation of the accrued interest payable,

$\Rightarrow\frac{(900000-300000)\times0.12\times4}{12}$

$\Rightarrow\frac{600000\times0.12\times4}{12}$

$\Rightarrow\frac{288000}{12}=\ 24000$

Therefore, the accrued interest payable will be $24,000.