Verilux Company sold merchandise to Flight Corp.on November 1,2017,for $10,000.Verilux accepted a promissory note from Flight Corp.for $10,000.The note has a term of five months and a stated interest rate of 7%.Verilux's accounting period ends on December 31,2017.What amount should Verilux recognize as interest revenue on December 31,2017?

Question

Quizplus · Accepted Answer

Verilux recognizes interest revenue using the simple interest method.

Interest revenue = Principal x Rate x Time

Since the note has a term of five months, the time period that has elapsed as of December 31,2017 is 2 months (November and December).

Interest Revenue = $10,000 x 0.07 x (2/12) = $116.67

Therefore, Verilux should recognize $116.67 as interest revenue on December 31, 2017.

Option B is correct.

Verilux Company Sold Merchandise to Flight Corp