Verilux Company sold merchandise to Flight Corp.on November 1, 2016, for $10,000.Verilux accepted a promissory note from Flight Corp.for $10,000.The note has a term of 5 months and a stated interest rate of 7%.Verilux's accounting period ends on December 31, 2016.What amount should Verilux recognize as interest revenue on December 31, 2016?

Question

Quizplus · Accepted Answer

The note has a term of 5 months, so on December 31, 2016, one month has passed since the transaction. The interest revenue for that one month will be calculated as follows: 
$10,000 x 7% ÷ 12 months = $58.33 per month 
$58.33 x 2 months (November and December) = $116.67 
Therefore, Verilux should recognize $116.67 as interest revenue on December 31, 2016.

Verilux Company Sold Merchandise to Flight Corp