On July 22 the Chris Corporation borrowed 4000000 by signing

On July 22, the Chris Corporation borrowed $4,000,000 by signing a 90-day, 6% note. The loan and interest are to be paid on October 19. What is the dollar amount of the company\'s July interest expense for the loan?

$59,178.08

$6,666.67

$240,000.00

$6,575.34

Solution

Solution:

Amount Borrwoed = $4,000,000

Interest rate = 6%

Maturity = 90 days

Total Interest for 90 days on loan = Amount borrowed *rate * maturity/365 = $4,000,000*6%*90/365 = $59,178.08

Days in July for which interest expense to be recorded = days from July 22 to July 31 = 10 days

Interest Expense for July = Total Interest for 90 days* 10/90 = $59178.08*10/90 = $6,575.34

Hence option \"d\" is correct.