On July 8th, Jones Inc. issued an $80,000, 6 %, 120-day notes payable to Miller Company, Assume that the fiscal year of Jones ends July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones in the current fiscal year?

A. $700

B. $4,200

C. $307

D. $1,400

C. $307

The note is of value 80,000 and there is a 6% interest on it which means that yearly interest on it will be (Principal * interest rate)

Principal = 80,000

Interest rate = 6%

80,000*0.06=4,800 is the yearly interest rate

But because the note is of 120 days and the year exist of 360 days we need to find the interest rate of 120 days.

120/360 * 4,800=1600

So the interest rate for 120 days is 1,600

The note was issued on July 8 and the year ended on July 31 which means that only 23 days of interest will be recognized in the current fiscal year.

So we need to find 23 days of interest

23/120*1600 = 307