Question

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest-bearing note. On April 8, Lee Co. will pay National Bank a total of $101,500. The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $100,000 (or $1,500) represents ......

Answer 1

Answer:

Interest expense

Explanation:

Interest expense is the cost of using debt financing. It is the extra amount repaid together with the principal amount. Interest expense represents the cost of borrowing funds.

Interest expense is calculated as a percentage of the principal amount per period, usually a financial year. Interest expense is a non-operating cost. If it's too high, it affects profitability adversely. Interest rates are a major determinant of interest expense. Firms and households pay to attention to the interest rates before borrowing due to its direct impact on the interest expense.