Question

Mission Corp. borrowed $50,000 cash on April 1, 2019, and signed a one-year 12%, interest-bearing note payable. The interest and principal are both due on March 31, 2020. Assume that the appropriate adjusting entry was made on December 31, 2019 and that no adjusting entries have been made during 2020. How much interest expense should Mission Corp. record on March 31, 2020?

Answer 1

Answer:

The amount of interest expense that Mission Corp. should record on March 31, 2020 is $1,500.

Explanation:

This can be calculated as follows:

Monthly interest expense = (Amount borrowed * Interest rate) / Number of months in a year = ($50,000 * 12%) / 12 = $500

Remaining number of months = Number of months from January 1, 2020 to March 31, 2020 = 3

Interest expense to record on March 31, 2020 = Monthly interest expense * Remaining number of months = $500 * 3 = $1,500