Jesse company adjusts its accounts monthly and closes its accounts on december 31. on october 31, 2015, jesse company signed a note payable and borrowed $150,000 from a bank for a period of six months at an annual interest rate of 6 percent.

a. how much is the total interest expense over the life of the note? how much is the monthly interest expense? (assume equal amounts of interest expense each month.)

Question

Mareli Duran

Business

11 August, 05:40

Jesse company adjusts its accounts monthly and closes its accounts on december 31. on october 31, 2015, jesse company signed a note payable and borrowed $150,000 from a bank for a period of six months at an annual interest rate of 6 percent.

a. how much is the total interest expense over the life of the note? how much is the monthly interest expense? (assume equal amounts of interest expense each month.)

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Answers (1)

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Jayce Norman · Answer 1

Answer: Total Interest Expense is $4500 and Monthly Interest Expense is $750

Explanation: A Note Payable is borrowed for a period of 6 months @ 6% annual interest rate. Since the note payable is borrowed for 6 months only, the interest amount will be the annual interest amount divided by 2.

Annual Interest Amount = Principal * 6%

Annual Interest Amount = $150,000 * 6%

Annual Interest Amount = $9,000

But since the notes payable is taken as a loan for a period of six months,

Total Interest Payable = Annual Interest Amount : 2

Total Interest Payable = $9,000 : 2

Total Interest Payable = $4,500

Monthly interest expense, as it says monthly interest expense assumes equal amount each month and there are 6 months for which loan is taken. So the formula will be:

Monthly Interest Expense = Interest Payable : 6

Monthly Interest Expense = $4500 : 6

Monthly Interest Expense = $750

Therefore, Monthly Interest Expense is $750.