Homework Answers
Principal amount = $74400
Interest rate = 10%
Time period of note payable = 120 days
Total days in year assumed = 360 days
Total interest on note payable by Alton Co. to seller co. =
$74400 × 10 × 120 / 360 ×100
= $2480
Since, for Seller Co. , year ends on June 30. Where as note payable is issued on June 8. It means for total 22 days, interest is recognized for the year in the year in which note payable is issued. Now for remaining 98 days ( 120 days - 22 days), interest will be recognized in following year, which is =
Total interest × 98 days / 120 days
= $2480 × 98 days / 120 days
= $2025
Therefore, the correct answer is option 3rd, $2025.
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