Question

On April 15, 2019, Powell Inc. obtained a six-month working capital loan from its bank. The face amount of the note signed by the treasurer was $335,000. The interest rate charged by the bank was 7.00%. The bank made the loan on a discount basis. b. Calculate the amount of interest expense applicable to this loan during the fiscal year ended June 30, 2019.

Answer 1

Answer:

Missing question "a. Calculate the loan proceeds made available to Powell.

a. Loan proceeds made available = Loan amount - (Loan amount*Interest rate*6/12)

Loan proceeds made available = $335,000 - ($335,000 * 7.00% * 6/12)

Loan proceeds made available = $335,000 - $ 11,725

Loan proceeds made available = $323,275

b. For the fiscal year ended June 30,2019, the interest accrual period applicable  is the day between April 15 - June 30 = 76 days

Interest expenses to be amortized = Discount interest * Accrual period / Loan period

Interest expenses to be amortized = ($335,000 * 7.00%) * 76/180

Interest expenses to be amortized = $23,450 * 0.4222

Interest expenses to be amortized = $9,900.59