Neil Construction Co. receives a note receivable from Sonny Plastics Inc. as settlement of an overdue account receivable. The note is for three months and bears an annual interest rate of 8%. The original accounts receivable balance was $800. When the note is collected, Neil Construction Co. will recognize interest revenue of

Question

Quizplus · Accepted Answer

The interest revenue on the note can be calculated using the simple interest formula:

Interest = Principal x Rate x Time

Where:
Principal = $800
Rate = 8% per year
Time = 3 months/12 months = 0.25 years

Interest = $800 x 8% x 0.25 = $16

Therefore, Neil Construction Co. will recognize interest revenue of $16 when the note is collected.