Chapter 10, Problem 1SSQ

To determine

Calculate the interest accrued at December 31.

Answer to Problem 1SSQ

Option b. $300 is the correct answer.

Explanation of Solution

Accrued interest: Accrued interest is the outstanding interest expense in the accounting period, as on the reporting date of financial statements.

Calculate interest accrued on loan at December 31:

$\begin{array}{c}\text{Accrued interest = Loan amount }\times \text{ Interest rate }\times \text{ Interest time period}\\ =\$5,000\times \frac{8}{100}\times \frac{9}{12}\\ =\$300\end{array}$

Note: Interest time period = 9 months (April 1 to December 31)

Therefore, Option b. $300 is the correct answer and the other options of a, c and d are incorrect.