Question

On July 1, 2018, Herzog Mining lends cash and accepts a $9,000 note receivable that offers 10% interest and is due in nine months. How would Herzog record the transaction on April 1, 2019, when the borrower pays Herzog the correct amount owed?

A. Cash 9,675
Notes Receivable 9,000
Interest Revenue 675
B. Cash 9,675
Notes Receivable 9,000
Interest Revenue 225
Interest Receivable 450
C. Cash 9,675
Notes Receivable 9,000
Interest Receivable 675
D. Cash 9,675
Notes Receivable 9,675

Answer 1

The answer is B.

Step-by-step explanation:

Because it is 9 months, the interest to be used cannot be 10% instead, it will be 9months/12months x 10%

0.75 x 10%

=7.5%

Interested on the borrowed money is 7.5% x $9,000

$675

On April 1, 2019, Herzog will the money lent plus interest.

So we have $9,000 + $675

=$9,675 and because Herzog is receiving, we debit cash account.

Interest revenue will be

$675/3months

=$225.

This will be credit

Interest receivables will be $675 - $225 = $450

This will also be in credit side