Question

On September 1, Year 1, Jack Company loaned $12,000 to Jill Company for a one year term at 5% interest per year. Jack Company's accounting year is January 1 to December 31 and the note is payable at maturity. In Year 2, Jack will collect interest revenue in cash of ______.

Answer 1

Jack Company will collect $600 in interest revenue from Jill Company in Year 2 for a loan of $12,000 at a 5% interest rate, due after the one-year loan term.

Step-by-step explanation:

In the scenario where Jack Company loaned $12,000 to Jill Company at a 5% interest rate for one year, Jack Company will collect interest revenue in cash of $600 in Year 2. This is calculated by multiplying the principal amount of $12,000 by the interest rate of 5%, resulting in $600 (12000 × 0.05 = 600). It's important to understand that the interest is for the full term of the loan, and since the loan was given on September 1, Year 1 and it has a one-year term, the interest for the entire year will be due at maturity, which is September 1, Year 2. Jack Company records this as interest receivable in Year 1 and then recognizes the interest revenue when it is actually received in cash in Year 2.