Question

On July 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal year of Alton Co. ends July 31. Using the 360-day year in your calculations, what is the amount of interest expense recognized by Alton in the current fiscal year? a. $1,200.00 b. $106.67 c. $306.67 d. $400.00

Answer 1

Answer:

$306.67          

Explanation:

The accrued interest is of 23 days which must be accounted for in the books of accounts.

The interest for 120 days = $80,000 * 6% * 120 / 360 = $1600

Now we will find interest for 23 days (July 31 MINUS 8 July).

Interest for 23 days = $1600 * 23 / 120 = $306.67

So the interest that has accrued at the end of the year is of 23 days and is $306.67.