Question

On November 1, 2021, New Morning Bakery signed a $200,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2022. New Morning Bakery records the appropriate adjusting entry for the note on December 31, 2021. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2022? (Do not round your intermediate calculations.)

Answer 1

Answer:

$206,0000

Explanation:

The interest on the note payable can be calculated by simply multiplying the interest rate with the amount borrowed, this gives the interest for the whole year and if we want interest for a desired month then we can multiply with the factor n/12. Here n is the desired month.

It can also be under stood from the following formula:

Interest for the year = Amount borrowed * Interest rate

Interest for the year = $200,000 * 6% = $12000

For six months loan,

Interest for six months = Interest for the year * 6 months / 12 months

Interest for six months = $12,000 * 6 / 12 = $6000

The amount the company will pay to its customers will be:

Amount required to pay back loan and interest = Amount borrowed + Interest for Six months

Amount required to pay back loan and interest = $200,000 + $6000 = $206,000