On september 1, year 1, west company borrowed $50,000 from valley bank. west agreed to pay interest annually at the rate of 6% per year. the note issued by west carried an 18-month term. west company has a calendar year-end. what is the amount of interest expense that will be reported on west's income statement for year 1?

multiple choice
a. $0
b. $1,000
c. $300
d. $750

Option (B) is correct.

Explanation:

Given that,

Borrowed amount by west company from valley bank = $50,000

Interest is paid annually = 6% per year

Time period = From 1st September to 31st December

                     = 4 months

The note issued by West carried an 18-month term.

Therefore,

Interest expense = Principal amount × Rate × Time period

                             = $50,000 × 6% × (4 ÷ 12)

                             = $50,000 × 0.06 × (1 ÷ 3)

                              = $1,000

Therefore, the amount of interest expense that will be reported on West's income statement for Year 1 is $1,000.

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