Question

Concord Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2017, Concord had the following transactions related to notes payable.Sept. 1 Issued a $14,400 note to Pippen to purchase inventory. The 3-month note payable bears interest of 6% and is due December 1. (Concord uses a perpetual inventory system.)Sept. 30 Recorded accrued interest for the Pippen note.Oct. 1 Issued a $22,800, 9%, 4-month note to Prime Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1.Oct. 31 Recorded accrued interest for the Pippen note and the Prime Bank note.

Answer 1

Answer:

Sep 30 (1 month from Sep 1 to Sep 30), accrued interest for the Pippen note is $70 (=$14,000*6%/12*1)

Oct 31 (2 months from Sep 1 to Oct 31), accrued interest for the Pippen note is $140 (=$14,000*6%/12*2)

Oct 31 (1 months from Oct 1 to Oct 31), accrued interest for the Prime Bank is $161 (=$22,800*9%/12*1)

Explanation:

Assuming the interest rate indicated is per annum

The accrued interest = amount of note x interest rate per annum/ 12 month x number of months accrued.

For the note to Pippen issued on Sep 1, then it’s 1 month at Sep 30 or 2 months at Oct 31

For the note to Prime Bank issued on Oct 1, then it’s 1 month at Oct 31