Question

The pita pit borrowed $198,000 on november 1, 2018, and signed a six-month note bearing interest at 12%. principal and interest are payable in full at maturity on may 1, 2019. in connection with this note, the pita pit should report interest expense at december 31, 2018, in the amount of

Answer 1

To compute for the interest expense for the year, the formula that we will be using would be the I = Prt

Where:

I = interest

P = principal = $198,000

r = rate = 12%

t = time = 2/12; only two months since Pita Pit only borrowed on November and the accounting period ends at December.

Computation:

I = Prt

= 198,000 x .12 x 2/12

= $3960