Assume a company issues a 90-day, 8% note payable for \$10,000. Using a 360-day year, what is the amount of interest expense that should be recorded at maturity?

• A. \$220
• B. \$200
• C. \$180
• D. \$240

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the formula for calculating interest expense. The formula is: Interest Expense = Principal × Rate × Time.
2. Step 2: Identify the values provided in the problem. The principal is \$10,000, the annual interest rate is 8% (or 0.08 as a decimal), and the time period is 90 days.
3. Step 3: Convert the time period into a fraction of a year using the 360-day year assumption. The fraction is calculated as: Time = 90 ÷ 360.
4. Step 4: Substitute the values into the formula. Using MathML, the formula becomes: $\mathrm{Interest}=\mathrm{Principal}\times \mathrm{Rate}\times \mathrm{Time}$. Specifically: $\mathrm{10,000}\times 0.08\times \frac{90}{360}$.
5. Step 5: Perform the multiplication and division to calculate the interest expense. This will give the amount of interest to be recorded at maturity.