Gomez Agencies accepts an 20-month, 6%, $7,500 note receivable from a client in settlement of an outstanding accounts receivable on November 1, 2009.The client pays off the note on June 30, 2011.Gomez has a December 31 year-end.Gomez should recognize interest revenue in 2011 of:

Question

Quizplus · Accepted Answer

To calculate the interest revenue that should be recognized in 2011, we need to first determine the total amount of interest for the entire term of the note.

Interest = Principal x Rate x Time

Principal = $7,500 
Rate = 6% 
Time = 20/12 = 1.67 years

Interest = $7,500 x 0.06 x 1.67 = $750

Since the note was paid off on June 30, 2011, Gomez is entitled to six months of interest revenue for 2011.

Interest revenue for 2011 = $750 x (6/20) = $225

Therefore, the best choice is B, $225.

Gomez Agencies Accepts an 20-Month, 6%, $7,500 Note Receivable from a Client