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 the maturity date of the note?

Question

Quizplus · Accepted Answer

The promissory note has an annual interest rate of 10%, which means that for three months, the interest rate is (10%/12) x 3 = 2.5%.

Therefore, the interest revenue that the company should recognize on the maturity date (which is three months after December 1, 2012) is:

Principal x Interest rate x Time
= $120,000 x 2.5% x 3/12
= $3,000 x 3/12
= $750

Therefore, the correct answer is C) $2,000.

Absolute Appliances the Company Sold Merchandise to a Customer on December