Absolute Appliances The company sold merchandise to a customer on December 1,2012,for $120,000.The company accepted a promissory note as payment.The note has a term of three months and an annual interest rate of 10%.The company's accounting period ends on December 31.
-Refer to Absolute Appliances.What amount should the company recognize as interest revenue on December 31,2012?

Question

Quizplus · Accepted Answer

The company's accounting period ends on December 31, and it sold the merchandise on December 1. Therefore, there is only one month remaining until the end of the term of the note. To calculate the interest revenue, we need to use the formula:

Interest = Principal x Rate x Time

where Principal is the amount of the promissory note, Rate is the annual interest rate, and Time is the fraction of the year that the note is outstanding. In this case, the Principal is $120,000, the Rate is 10%, and the Time is 1/12 (one month out of 12 months in the year).

Interest = $120,000 x 10% x 1/12 = $1,000

Therefore, the company should recognize $1,000 as interest revenue on December 31, 2012.

Absolute Appliances the Company Sold Merchandise to a Customer on December