On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-month note for $100,000 at 15%. How much interest revenue did the company record in the year 2016 for this note?

Question

Quizplus · Accepted Answer

The note was signed on October 1, 2015, so it would mature on February 1, 2016 (4 months later). The interest for those 4 months would be (100,000 x 15% x 4/12) = $5,000. However, the question is asking for the interest revenue recorded in the year 2016, so we only need to account for the interest earned from January 1, 2016, to February 1, 2016 (the maturity date). That interest would be (100,000 x 15% x 1/12) = $1,250. Therefore, the correct answer is C.