A Edgewater equipment note has principal of $126,500 at 7.20% annual interest. If 2 months of interest have accrued, what interest expense should be recorded?
Correct Answer
C) $1,518.00
Accrued interest equals principal times annual rate times the fraction of the year accrued.
Why This Is the Correct Answer
Accrued interest equals principal times annual rate times the fraction of the year accrued.
Why the Other Options Are Wrong
Option A: $9,108.00
$9,108.00 is above the supported result for accrued interest expense; it likely adds an unsupported amount or compares the wrong financial base.
Option B: $759.00
$759.00 is below the supported result for accrued interest expense; it likely uses the wrong base, period, or account bucket.
Option D: $21,083.33
$21,083.33 is above the supported result for accrued interest expense; it likely adds an unsupported amount or compares the wrong financial base.
Memory Technique
Principal and times live in different drawers; Accountant Posts tells which opens.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section Three, Adjusting Entries, Accrued Expenses; use the job ledger figures in the stem and recompute the same accounting measure.
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