If there is a cash shortage, the company borrows money. If a surplus occurs funds are used to repay loans or to invest in short-term assets. All borrowing, repayments, and interest payments occur on the last day of the month. The interest rate is 1% per month. The company had no debt before January 1st. The amount of interest expense incurred for January is:

Question

Luka

Business

29 July, 06:42

If there is a cash shortage, the company borrows money. If a surplus occurs funds are used to repay loans or to invest in short-term assets. All borrowing, repayments, and interest payments occur on the last day of the month. The interest rate is 1% per month. The company had no debt before January 1st. The amount of interest expense incurred for January is:

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Hernandez · Answer 1

Nil

Explanation:

Given that,

There is a cash shortage.

All borrowing, repayments, and interest payments occur on the last day of the month.

Interest rate = 1% per month

Debt = No debt before 1st January

The amount is borrowed at the end of the month of January and interest is paid in the following month i. e February.

Hence, the amount of interest expense incurred for January is nothing, it means zero.