Question

On March 1st, Kalka Company borrowed $5,000 in the form of a three-month note payable with an annual interest rate of 6 percent. The interest will be paid on May 31st at the same time the note is repaid. The Interest Expense accrued on March 31st will be A : $25. B : $300. C : $100. D : $75.

Answer 1

Answer:

Option (A) is correct.

Explanation:

Given that,

On March 1st,

Kalka Company borrowed = $5,000 for a three-month note payable

Annual interest rate = 6 percent

Period = one month

$Interest expense accrued=5000\times0.06\times\frac{1}{12}$

                                                 = 5000 × 0.06 × 0.083

                                                 = $24.9 or $25

As Kalka Company borrowed $5000 on March 1st and accrued interest expenses on March 31st is $25.