Question

On April 1 of Year 1, Respawn accepted a $12,000, 12-month, 10% note from a customer in granting a time extension on his past-due

account receivable. Respawn's year-end is December 31. Compute interest revenue recorded by Respawn in Year 1 and Year 2.
Year 1
Year 2
Interest Revenue

Answer 1

Year 1:
To calculate the interest revenue for year 1, we need to use the formula: Interest = Principle x Rate x Time
Principle = $12,000
Rate = 10% per annum
Time = 9/12 (Since the note was accepted on April 1 and year end is December 31, only 9 months have passed in year 1)

Therefore, Interest = $12,000 x 10% x 9/12 = $900

Respawn would record $900 as interest revenue in Year 1.

Year 2:
For Year 2, we need to calculate the interest based on the remaining 3 months of the note.

Principle = $12,000
Rate = 10% per annum
Time = 3/12 (Since only 3 months are remaining)

Therefore, Interest = $12,000 x 10% x 3/12 = $300

Respawn would record $300 as interest revenue in Year 2.

Note: In both years, the interest revenue would be recorded under the income statement as "Interest Revenue".