HdG,Inc.accepts a $100,000,5% note from Aberdeen Unlimited on 4/1/16.,and lends money to Aberdeen.Aberdeen agrees to pay 5 equal annual payments on this note beginning 3/31/17.The market rate at the date of issuance of this note was 5%.How much Interest Revenue will HdG record on 3/31/17,the first annual installment payment date?

Question

Quizplus · Accepted Answer

The correct answer is A. The interest revenue for the first year is $100,000 x 5% = $5,000. However, since the first payment is not due until 3/31/17, only 9 months of interest has accrued as of 3/31/17. Therefore, the interest revenue recorded on 3/31/17 will be 9/12 x $5,000 = $3,750.

HdG,IncAccepts a $100,000,5% Note from Aberdeen Unlimited on 4/1/16