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shrapnel
Jul 1, 2009, 04:21 AM
It says the answer to the following question is "25", but I don't know how to get it. The answer I keep getting is "50", and its not even listed as a possible answer.

A company signed a 6-month note payable on 8/1/08 for $5,000 with 6% interest. The financial year ends on 12/31/08. On the day of the payment, 2/1/09, the interest expense will be debited for...

A. 300
B. 150
C. 25
D. 125

The answer key says its C, but as I said, I don't know how they got that answer.

Can anybody help?
pready
Jul 1, 2009, 03:59 PM
The interest expense for the payment on 2/1/09 will be for one month (January).

The formula to compute this expense is:
$5,000 (principial) * 6% (rate) * 1/12 ( one month of time/ 12 months) = $25