On Oct.1,2020,Othello,Inc.signed a 1-year $75,000 note payable from First National Bank.The loan plus 6% interest is to be paid on Sept.30,2021.Othello's year -end is December 31.In its 2020 financial statements Othello will record interest expense of
A)$375.
B)$1,125.
C)$4,500.
D)$75,000.

Question

Quizplus · Accepted Answer

The interest expense for 2020 can be calculated as follows:
Interest = Principal x Rate x Time
Since the note was signed on Oct.1,2020, there are only 3 months left until the end of the year:
Interest = $75,000 x 6% x (3/12) = $1,125
Therefore, the correct answer is B) $1,125

On Oct1,2020,Othello,Inc