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16 August, 07:14

Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with interest and principal to be paid at maturity. How much interest will Longitude report on its income statement for the year ending December 31? a.$10,000b. $15,000c. $5,000d. $30,000

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  1. 16 August, 09:59
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    Option (a) is correct.

    Explanation:

    Given that,

    Note value = $150,000

    Rate of interest = 10%

    Time period: May 1 to December 31 = 8 months

    Therefore, the interest amount upto December 31 is calculated as follows:

    = Note value * Rate of interest * Time period

    = $150,000 * 10% * (8 : 12)

    = $150,000 * 0.1 * 0.67

    = $10,000

    Hence, interest of $10,000 will Longitude report on its income statement for the year ending December 31.
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