Crimson Tide borrows $15,000 on September 1, 2018. The principal is due to be repaid in four...

Question:

Crimson Tide borrows $15,000 on September 1, 2018. The principal is due to be repaid in four years. Interest is payable each August 31 at an annual rate of 10%. I need to know how to get the ending number of 500, not the answer. How do I get to the 500 from the 15,000? Is there a formula?

Interest Expense:

Normally the simple interest over the borrowings and the investment is computed by applying the given interest rate for the stated period. Under a simple interest method, the interest is not added to the principal value.

Answer and Explanation:

The interest for the year ending as on 31st December would be $500.

Explanation: The interest for the year ending as on 31st December would be $500 ($15,000 x 10% x 4/12).


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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