Question

On December 1, Milka Inc. borrows $500,000 from the bank. Interest of 6% is due in six months. On December 31, Milka recognizes interest. As a result of this journal entry, Milka's balance sheet reports:

Answer 1

Milka's balance sheet reports: Interest payable for one month.

What is interest?

The fee you pay to borrow money or the fee you charge to lend money is called interest.

Some features of interest are-

• The fee paid for the privilege of borrowing money is called interest, and it is often stated as an annual percentage rate (APR).
• The compensation a lender or financial organization receives for giving out money is called interest.
• The most common way to represent interest is as a yearly percentage of the loan amount.
• The interest rate on the loan is known as this percentage.
• For instance, if you put money in a savings account, a bank will provide you interest.

The three types of interest include -

1. simple (regular) interest: The daily interest rate, the principle, and the number of days between payments are multiplied to determine simple interest.
2. accrued interest: The amount of interest accrued on a loan or other financial obligation as of a certain date that has not yet been paid back.
3. compounding interest: The interest you earn on interest is known as compound interest. Simple math may be used to demonstrate this: If you have $100 and it generates 5% interest annually, you will have $105 at the end of the first year. You'll have $110.25 after the second year is over.

To know more about the estimation of simple interest, here

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