Chapter 11, Problem 1MCQ

On December 1, a company signed a $6,000, 90-day, 5% note payable, with principal plus interest due on March 1 of the following year. What amount of interest expense should be accrued at December 31 on the note?

1. a. $300
2. b. $25
3. c. $100
4. d. $75
5. e. $0

To determine

Identify the amount of interest expense that should be accrued at December 31 on the note.

Answer to Problem 1MCQ

Option B is the correct answer.

Explanation of Solution

Interest Expense:

Interest expense refers to the cost of debt incurred by the company for the use of resources of another firm and they are mostly in the form of loan. Interest expense appears in the income statement under the head of non- operating expense in the financial statement

$\begin{array}{c}\text{Interest Expense accrued = Principal amount × Interest rate × Time period}\\ \text{=\$6,000}\times \text{5\%}\times \frac{30}{360}\\ =\$25\end{array}$

Therefore, from the given calculation option B ($25) is the correct answer and other options a, c, d and e are incorrect  answers.