On October 1, Black Company receives a 9% interest-bearing note from Reese Company to settle a $20,000 account receivable. The note is due in six months. At December 31, Black should record interest revenue of

Question

Quizplus · Accepted Answer

Interest revenue is calculated based on the principal amount, the annual interest rate, and the time period the note has been outstanding. Since the note is for 6 months at a 9% annual rate, for 3 months (October 1 to December 31), the interest revenue is $20,000 * 9% * (3/12) = $450.

On October 1, Black Company Receives a 9% Interest-Bearing Note