Utah Co.sold merchandise to Big Sky Corp.on December 1, 2014, for $9,000, and accepted a promissory note for payment in the same amount.The note has a term of 90 days and a stated interest rate of 8%.Utah's accounting period ends on December 31.What amount should Utah recognize as interest revenue on the maturity date of the note?

Question

Quizplus · Accepted Answer

To calculate the interest revenue, we need to first calculate the interest expense. 
Interest expense = Principal amount × Annual stated interest rate × Time 
Time = 30 / 360 (since it's within the same accounting period and we assume a 360-day year) 
Interest expense = $9,000 × 8% × (30/360) = $60

Since the note was issued on December 1, 2014, it will mature on February 28, 2015 (90 days later). On the maturity date, Big Sky Corp. will pay Utah Co. the principal amount of $9,000 plus the interest expense of $60. Therefore, Utah Co. should recognize $120 ($60 + $60) as interest revenue on the maturity date of the note.

Utah CoSold Merchandise to Big Sky Corp