Question

On October 1, Black Company receives a 6% 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:

A. $0
B. $300
C. $600
D. $1,200

Answer 1

B. $300

Step-by-step explanation:

The interest revenue is computed below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $20,000 × 6% × (3 months ÷ 12 months)

= $300

The 6 months is calculated from October 1 to December 31

Simply we use the simple interest formula by considering the principal amount, rate of interest and time period so that the correct revenue can be computed