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Untitled Document13 - rate. Generally, it is assumed that...

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In the final year, the June 30 quarterly interest accrual and July 1 payoff would be  as shown. Date Account Title and Description R ef. Debit Cred it 20X3 June 30 Interest Expense ($10,000 × 10% × 3 / 12 ) 250 Interest Payable 250 To accrue 2nd quarter interest July 1 Notes Payable 10,00 0 Interest Payable 250 Cash 10,25 0 To pay off note and interest due If interest is not paid until maturity of the note, the amount of interest accrued is  often determined by compounding. The annual interest expense is the beginning  of the year note principal plus accrued interest payable times the annual interest 
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Unformatted text preview: rate. Generally, it is assumed that in any arm's length transaction, the interest rate stated on a note signed in exchange for goods and services is a fair rate. If an interest rate is not stated, the exchange value is based on the value of the goods or services received. The difference between the exchange value and the face amount of the note signed is considered interest....
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