34. The note payable relating to the June 2, and 10 transactions is a five-year

Question

34. The note payable relating to the June 2, and 10 transactions is a five-year note, with interest at the rate of 12 percent annually. Interest expense should be computed based on a 360 day year. [IMPORTANT NOTE: The original note on the computer equipment purchased on June 2 was $112,000. On June 10, eight days later, $21,500 was repaid. Interest expense must be calculated on the $112,000 for eight days. In addition, interest expense on the $90,500 balance of the loan ($112,000 less $21,500 = $90,500) must be calculated for the 20 days remaining in the month of June.]

Explanation / Answer

Interest Expense on 112000 for 8 days = 112000 * 8 * 12 / (100 * 360) = 298.67

Interest Expense on 90500 for 20 days = 90500 * 20 * 12 / (100 * 360) = 603.33

Total Interest For June = 298.67 + 603.33 = 902

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