A $20,000, 9%, 3-month note receivable is issued on December 1, with interest due at maturity. When the note is paid the following February, the payee's entry includes (assuming a calendar-year accounting period) a credit to interest revenue of

Question

Quizplus · Accepted Answer

The interest revenue can be calculated using the formula: 
Interest = Principal x Rate x Time
where,
Principal = $20,000
Rate = 9% = 0.09 (per quarter)
Time = 3/12 = 0.25 (in years)

Interest = $20,000 x 0.09 x 0.25 = $450

Therefore, the entry for the payee would be:

Cash (principal + interest)   $20,450
   Note Receivable                      $20,000
   Interest Revenue                       $450

A $20,000, 9%, 3-Month Note Receivable Is Issued on December