Question

2) On November 1, 2018, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. The Bagel Factory should report interest payable at December 31, 2018, in the amount of B) $1,000 C) $2,000. D) $3,000. A) $0.

Answer 1

B. $1,000.

Here, we have six-month note payable signed on Nov 1, 2018. The period till Dec 31, 2018, will be 2months. So, interest accrued and due would be for a period of 2 months as on Dec 31, 2018. The interest due but not paid will be reported under interest payable under the heading "Current Liabilities".

Interest payable as on 31st Dec,2018 = [($100,000 x 6%) x 2/12] = $1,000.