On June 1,Davis Inc.issued an $84,000,5%,120-day note payable to Garcia Company.Assume that the fiscal year of Garcia ends June 30.Using the 360-day year,what is the amount of interest revenue recognized by Garcia in the following year?
A)$700
B)$1,600
C)$1,061
D)$4,200

Question

Quizplus · Accepted Answer

First, we need to calculate the interest on the note payable:
$84,000 x 5% x (120/360) = $1,400

Since the note was issued on June 1 and Garcia's fiscal year ends on June 30, only one month of interest will be recognized in that fiscal year:
$1,400 x (30/360) = $117

The remaining $1,283 ($1,400-$117) will be recognized in the following fiscal year. Therefore, the amount of interest revenue recognized by Garcia in the following year is $1,283, which is closest to option C ($1,061).