Utah Co.sold merchandise to Big Sky Corp.on December 1,2017,for $9,000 and accepted a promissory note for payment in the same amount.The note has a term of 90 days and a stated interest rate of 8%.Utah's accounting period ends on December 31.What amount should Utah recognize as interest revenue on the maturity date of the note?

Question

Quizplus · Accepted Answer

Since the note has a term of 90 days, it will mature on February 28, 2018 (90 days after December 1, 2017). Therefore, Utah Co. will earn interest revenue for two months: December 2017 and January 2018. The interest on the note can be calculated as follows:

Interest = Principal x Rate x Time
= $9,000 x 8% x 2/12
= $120

Therefore, Utah Co. should recognize $120 as interest revenue on the maturity date of the note.

Utah CoSold Merchandise to Big Sky Corp