Question

Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2013. In connection with this note, Universal Travel, Inc. should report interest payable at December 31, 2012, in the amount of:a. $8,000.b. $30,000.c. $5,000.d. $25,000.

Answer 1

option (c) $5,000

Step-by-step explanation:

Data provided in the question:

Amount borrowed = $500,000

Interest rate for 12 months = 6%

Interest rate for a month =
`(6\%)/(12)` = 0.5%

Period from November 1, 2012 to December 31, 2012 = 2 months

Now,

Total interest for 2 months = 2 × Interest per month

= 2 × 0.5%

= 1%

Therefore,

The interest payable on December 31, 2012 = Amount borrowed × Interest

= $500,000 × 1%

= $500,000 × 0.01

= $5,000

Hence,

The correct answer is option (c) $5,000