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10 August, 23:05

Craig borrowed $700,000 on October 1, 2020 and is required to pay $720,000 on March 1, 2021. What amount is the note payable recorded at on October 1, 2020 and how much interest is recognized from October 1 to December 31, 2020?

a. $700,000 and $0.

b. $700,000 and $12,000.

c. $720,000 and $0.

d. $700,000 and $20,000.

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Answers (1)
  1. 10 August, 23:25
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    b. $700,000 and $12,000.

    Explanation:

    The computation is shown below

    For note payable recorded as on October 1 is equal to the borrowed amount i. e $700,000

    And, the interest recognized from October 1 to December 31, 2020 is

    = (Paying amount - borrowed amount) * number of months : Given months

    = ($720,000 - $700,000) * 3 months : 5 months

    = $20,000 * 3 months : 5 months

    = $12,000

    The 3 months is calculated from Oct 1 to Dec 31

    And, the 5 months is calculated from Oct 1 to Mar 1

    hence, the correct option is B.
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