Question

On October 1, Black Company receives a 6% interest-bearing note from Reese Company to settle a $17,400 account receivable. The note is due in six months. At December 31, Black should record interest revenue ofA. $0 B. $450 C. $900 D. $1,800

Answer 1

$522 (not given in the options)

Step-by-step explanation:

The interest revenue will be earned over six months. However, based on the accrual system of accounting, the interest will be recognized over the period it is earned and not necessarily when it is settled.

Between October 1 and December 31 is a period of 6 months. Interest receivable over the period

= 3/6 * 6% * $17,400

= $522