Question

Equestrain Roads sold $120000 of goods and accepted the customer's $120000 10%, 1-year note in exchange. Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30

Answer 1

To calculate the interest that would be recorded for the year ending December 31 if the sale was made on June 30, we can use the following formula:

Interest = Principal x Rate x Time

Where:
- Principal = $120,000
- Rate = 10%
- Time = 0.5 years (since the note is for 1 year, but the sale was made on June 30, which is halfway through the year)

First, we need to calculate the interest for the first six months (from June 30 to December 31):

Interest for first six months = $120,000 x 10% x 0.5 = $6,000

Then, we need to add the interest for the second six months (from January 1 to June 30 of the following year), which is the same amount:

Interest for second six months = $120,000 x 10% x 0.5 = $6,000

Therefore, the total interest recorded for the year ending December 31 would be:

Total interest = Interest for first six months + Interest for second six months
Total interest = $6,000 + $6,000
Total interest = $12,000

So, Equestrain Roads would record $12,000 of interest for the year ending December 31 if the sale was made on June 30 and assuming 10% approximates the market rate of return.