Craig borrowed $700,000 on October 1, 2017 and is required to pay $720,000 on March 1, 2018. What amount is the note payable recorded at on October 1, 2017 and how much interest is recognized from October 1 to December 31, 2017? A) $700,000 and S0. B) $700,000 and $12,000. C) $720,000 and SO. D) $700,000 and $20,000.

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Business

Miya Orr

27 May, 08:14

Craig borrowed $700,000 on October 1, 2017 and is required to pay $720,000 on March 1, 2018. What amount is the note payable recorded at on October 1, 2017 and how much interest is recognized from October 1 to December 31, 2017? A) $700,000 and S0. B) $700,000 and $12,000. C) $720,000 and SO. D) $700,000 and $20,000.

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Answers (1)

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Liana Peck · Answer 1

B) $700,000 and $ 12,000

Explanation:

The note payable is recorded on the borrowing date of October 01 2017 at its face value $ 700,000. The amount due on the maturity of the note on March 01 2018 is 720,000, thus the interest on the note is $ 20,000 for the 5 month period of the borrowing. (October 1 to March 1).

The recognition of the interest for the 3 month period October to December is calculated as under:

Total interest for 5 months $ 20,000

Interest for 3 months $20,000/5*3 = $ 12,000

So the answer is $ 700,000 and $ 12,000