Firewood Inc.signed a three-year note payable for $45,000 at 7% annual interest.What is the interest expense for 2013 if the note was signed on August 1,2013?
A)$1,575
B)$1,313
C)$9,450
D)$3,150

Question

Quizplus · Accepted Answer

To calculate the interest expense for 2013, we need to find the number of months (or fraction thereof) between August 1, 2013 and December 31, 2013 (end of the year).

Number of months = 5 (August, September, October, November, December)

Interest expense = Principal x Rate x Time
= $45,000 x 7% x 5/12
= $1,312.50

Rounding to the nearest dollar, the interest expense for 2013 is $1,313. Therefore, the best choice is B.