On November 1, Jovel Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31. The amount of interest revenue that should be reported in the first year is:
A) $5,000.
B) $1,000.
C) $6,000.
D) $16,667.
E) $0.

Question

Quizplus · Accepted Answer

The company's accounting period ends on December 31, meaning the company only has 2 months (November and December) to earn interest revenue on the loan. To calculate the interest revenue for these 2 months, we can use the following formula:
Interest = Principal x Rate x Time
Interest = $100,000 x 6% x 2/12
Interest = $1,000
Therefore, the amount of interest revenue that should be reported in the first year is $1,000.

On November 1, Jovel Company Loaned Another Company $100,000 at a 6.0