Use the following information to answer questions
The Niven Law Firm signed a $25,000, 120-day, 10% note payable to Eastlake Bank on October 15, 2010.
-Assuming a 360-day calendar year, how much interest expense relative to this note should Niven recognize in 2011? (Round to the nearest cent.)
A) $ 298.61
B) $ 305.55
C) $ 833.33
D) $2,500.00
E) none of the above

Question

Use the following information to answer questions 
The Niven Law Firm signed a $25,000, 120-day, 10% note payable to Eastlake Bank on October 15, 2010.  
-Assuming a 360-day calendar year, how much interest expense relative to this note should Niven recognize in 2011? (Round to the nearest cent.)
A) $ 298.61
B) $ 305.55
C) $ 833.33
D) $2,500.00
E) none of the above

Quizplus · Accepted Answer

The note is for 120 days starting from October 15, 2010. The interest for the entire period is calculated as $25,000 * 10% * (120/360) = $833.33. However, only the interest for the days in 2011 (January 1 to February 12, 2011, which is 43 days) should be recognized in 2011. Thus, the interest for 2011 is $25,000 * 10% * (43/360) = $298.61.

Use the Following Information to Answer Questions