On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.) Multiple Choice $225 $300 $900 $0 $75 O
On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.) Multiple Choice $225 $300 $900 $0 $75 O
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Question 29
![### Calculating Interest Expense Accrued on a Note Payable
On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. To determine the amount of interest expense accrued at December 31 on the note, consider the following:
#### Formula for Interest Calculation
\[ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \]
Where:
- Principal is the face value of the note.
- Rate is the annual interest rate.
- Time is the portion of the year the interest is accrued. (Use 360 days a year for the calculation, not 365.)
#### Given Data
- Principal (P): $15,000
- Annual Interest Rate (R): 6%
- Time (T): 30 days (from December 1 to December 31 since it's a 90-day note and we are calculating for one month).
#### Calculation
1. Convert the annual rate to a daily rate:
\[ \text{Daily Rate} = \frac{6\%}{360} = 0.01667\% \]
2. Calculate the interest for 30 days:
\[ \text{Interest} = P \times R \times T \]
\[ \text {Interest} = 15,000 \times \frac{6}{100} \times \frac{30}{360} \]
\[ \text {Interest} = 15,000 \times 0.06 \times \frac{1}{12} \]
\[ \text {Interest} = 15,000 \times 0.005 \]
\[ \text {Interest} = 75 \]
#### Multiple Choice Question
What amount of interest expense is accrued at December 31 on the note?
- \( \circ \) $225
- \( \circ \) $300
- \( \circ \) $900
- \( \circ \) $0
- \( \bullet \) $75
The correct answer is **$75**.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F950ccb0b-88f0-424e-a789-46ed3bd2a086%2Ffee0ca3d-760e-4df0-be1b-0e40cd5a65eb%2Fa5pjs2k_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Calculating Interest Expense Accrued on a Note Payable
On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. To determine the amount of interest expense accrued at December 31 on the note, consider the following:
#### Formula for Interest Calculation
\[ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \]
Where:
- Principal is the face value of the note.
- Rate is the annual interest rate.
- Time is the portion of the year the interest is accrued. (Use 360 days a year for the calculation, not 365.)
#### Given Data
- Principal (P): $15,000
- Annual Interest Rate (R): 6%
- Time (T): 30 days (from December 1 to December 31 since it's a 90-day note and we are calculating for one month).
#### Calculation
1. Convert the annual rate to a daily rate:
\[ \text{Daily Rate} = \frac{6\%}{360} = 0.01667\% \]
2. Calculate the interest for 30 days:
\[ \text{Interest} = P \times R \times T \]
\[ \text {Interest} = 15,000 \times \frac{6}{100} \times \frac{30}{360} \]
\[ \text {Interest} = 15,000 \times 0.06 \times \frac{1}{12} \]
\[ \text {Interest} = 15,000 \times 0.005 \]
\[ \text {Interest} = 75 \]
#### Multiple Choice Question
What amount of interest expense is accrued at December 31 on the note?
- \( \circ \) $225
- \( \circ \) $300
- \( \circ \) $900
- \( \circ \) $0
- \( \bullet \) $75
The correct answer is **$75**.
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