Many businesses borrow money during periods of increased business activity to fi

Question

Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target Corporation is one of America’s largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of Christmas sales are on credit. As a result, Target often collects cash from the sales several months after Christmas. Assume that on November 1, 2015, Target borrowed $6.5 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 6.00 percent payable at maturity. The accounting period ends December 31. cant figure out the interest i thought you just multiplied the percentage im getting 390,000

Explanation / Answer

Interest Should be calculated for Period 1.11.2015 to 31.12.2015 i.e only for 2 months.

(Assuming the rate of 6% for 6 months)

So, Interest to be recorded on 31.12.2015 shall be

6500000 * 6/100 * 2/6 = $ 1,30,000

Thanks

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