On November 1, Year 1, Dorian Collections Agency accepted a $100,000, 3-month note from a customer.The note earns 9% interest per year.What is the amount of interest receivable recorded by Dorian Collections Agency at December 31, Year 1? (Assume no other entries to record interest have been made.)
A)$9,000
B)$1,500
C)$750
D)$0, because interest is not due until February 1 of Year 2
E)$900

Question

Quizplus · Accepted Answer

The note is for 3 months, so it matures on January 31, Year 2. Therefore, at December 31, Year 1, one third of the note has elapsed and one third of the interest has been earned. The interest for one month is ($100,000 x 9%)/12 = $750. Thus, the interest receivable at December 31, Year 1 would be ($750 x 1) = $750. Therefore, the best choice is B.

On November 1, Year 1, Dorian Collections Agency Accepted a $100,000