On June 30, 2012, Rolloff Inc. borrowed $25,000 from its bank, signing a 6% note

Question

On June 30, 2012, Rolloff Inc. borrowed $25,000 from its bank, signing a 6% note. Principal and interest are due at the end of two years.

Required:

2. Assume instead that the note earns 6% for the bank but is compounded semiannually. Calculate the amount of interest accrued on the same dates as in part (1). Round your answers to the nearest whole dollar, with each step in your calculation.

3. How much additional interest expense will Rolloff have to pay with semiannual interest?

Dec. 31, 2012 $ Dec. 31, 2013 June 30, 2014 Total accrued $

Explanation / Answer

PART 1 12/31/13 $25,000 * (12/12) * 6% = $1500 (amt. accrued in 2013) 6/30/14 $25,000 * (6/12) * 6% = $750 (amt. accrued in 2014) Total accrued = $750 + $1500 + $750 = $3000
PART 2 12/31/12 $25,000 * 1 * 6% = $750 (amt. accrued in 2012) 12/31/13 $25,000 * 2 * 6% = $3000 (amt. accrued in 2013) 6/30/14 $25,000 * 1 * 6% = $750 (amt. accrued in 2014) Total accrued = $750 + $3000 + $750 = $4500
PART 3 Additional interest expense with semiannual = $1500

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