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On September 1, 2016, Demich Co. issued a note payable to National Bank in the amount...

On September 1, 2016, Demich Co. issued a note payable to National Bank in the amount of $2,400,000, bearing interest at 12%, and payable in three equal annual principal payments of $800,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2017. At December 31, 2016, Demich should record accrued interest payable of
a.   $58,000.
b.   $54,000.
c.   $64,000.
d.   $49,500

I saw other question before but the answer was 96,000. That is not the answer. My calculation gave me 64,000 or am I wrong.

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Answer #1

First payment was made on September 1, 2017 of $800,000. After that the balance was $1,600,000($2,400,000 - $800,000).

Interest Accrued at December 31, 2016 on $1,600,000 for four months( Sept. To Dec.)

= Principal*interest rate* time period

= $1,600,000*12%*(4/12)

= $64,000

$64,000 is the correct answer.

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