Chapter 9, Problem 1MCQ

To determine

Interest Expenses:

Interest expenses represent that amount which is payable on any type of debt borrowed by a person at a fixed rate payable in fixed intervals.

To identify: The correct option.

Answer to Problem 1MCQ

‘Option b’ is correct.

Explanation of Solution

Interest Expense
$\begin{array}{c}\text{Intrest}\text{Expenses}=\text{Principal}\times \text{Interest}\text{Rate}\times \frac{\text{Outstanding}\text{Days}\text{on}\text{December}31}{360\text{Days}}\\ =\$6,000\times 5\%\times \frac{30}{360\text{days}}\\ =\$6,000\times 0.05\times \frac{1}{12}\\ =\$25\end{array}$

Thus, interest expense is $25.