Question

Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with interest and principal to be paid at maturity. How much interest will Longitude report on its income statement for the year ending December 31?a .$10,000b. $15,000c. $5,000d. $30,000

Answer 1

Answer:

Option (a) is correct.

Explanation:

Given that,

Note value = $150,000

Rate of interest = 10%

Time period: May 1 to December 31 = 8 months

Therefore, the interest amount upto December 31 is calculated as follows:

= Note value × Rate of interest × Time period

= $150,000 × 10% × (8 ÷ 12)

= $150,000 × 0.1 × 0.67

= $10,000

Hence, interest of $10,000 will Longitude report on its income statement for the year ending December 31.