Asked by Dheandra Armyra on Jul 15, 2024
Verified
On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that the fiscal year of Jones ends on July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones in the current fiscal year?
A) $700
B) $4,200
C) $307
D) $1,400
Interest Expense
The cost incurred by an entity for borrowed funds; interest expense is a non-operating expense shown on the income statement.
360-Day Year
A financial convention that simplifies interest calculations by assuming a year has 360 days.
Note Payable
A financial obligation or loan documented by a written promissory note specifying repayment terms, interest rates, and maturity dates.
- Develop an appreciation for utilizing bespoke bank accounts in the administration of payroll.
Verified Answer
TJ
Tammy JenkinsJul 18, 2024
Final Answer :
C
Explanation :
We can start by calculating the interest expense using the following formula:
Interest expense = Principal x Interest rate x Time
Where:
Principal = $80,000
Interest rate = 6%
Time = 120/360 = 1/3 years (since we're using a 360-day year)
Plugging in the values, we get:
Interest expense = $80,000 x 6% x 1/3 = $1,600
However, since the fiscal year of Jones ends on July 31 and the note was issued on July 8, the amount of interest expense recognized in the current fiscal year will be for 24 days only (from July 8 to July 31).
To calculate the interest expense for 24 days, we can use the following formula:
Interest expense = Principal x Interest rate x Time
Time = 24/360 = 1/15 years
Plugging in the values, we get:
Interest expense = $80,000 x 6% x 1/15 = $307
Therefore, the amount of interest expense recognized by Jones in the current fiscal year is $307. Option C is the correct answer.
Interest expense = Principal x Interest rate x Time
Where:
Principal = $80,000
Interest rate = 6%
Time = 120/360 = 1/3 years (since we're using a 360-day year)
Plugging in the values, we get:
Interest expense = $80,000 x 6% x 1/3 = $1,600
However, since the fiscal year of Jones ends on July 31 and the note was issued on July 8, the amount of interest expense recognized in the current fiscal year will be for 24 days only (from July 8 to July 31).
To calculate the interest expense for 24 days, we can use the following formula:
Interest expense = Principal x Interest rate x Time
Time = 24/360 = 1/15 years
Plugging in the values, we get:
Interest expense = $80,000 x 6% x 1/15 = $307
Therefore, the amount of interest expense recognized by Jones in the current fiscal year is $307. Option C is the correct answer.
Learning Objectives
- Develop an appreciation for utilizing bespoke bank accounts in the administration of payroll.