2. On March 1, 2010, Fine Co. borrowed P10,000 and signed a two-year note bearinginterest at 12% per annum compounded annually. Interest is payable in full atmaturity on February 28, 2012. What amount should Fine report as a liability foraccrued interest at December 31, 2011? a. P0 b. P1,000 c. P1,200 d. P2,320Answer is (d) Accrued interest payable at 12/31/11 is interest expense which has beenincurred by 12/31/11, but has not yet been paid by that date. The note issued on 3/1/10 and interest is payable in full at maturity on 2/28/12.Therefore, there is one year and ten months of unpaid interest at 12/31/11(3/1/10 to 12/31/11). Interest for the first year is P1,200 (P10,000 × 12%).Since interest is compounded annually, the new principal amount for second year includes the original principal (P10,000) plus the first year’sinterest (P1,200). Therefore, accrued interest for the ten months ended12/31/11 is P1,120 (P11,200 × 12% × 10/12), and total accrued interest 12/31/11 is P2,320 (P1,200 + P1,120).
3. On September 1, 2010, Brak Co. borrowed on a P1,350,000 note payable