Question

On October 1, Black Company receives a 10% interest bearing note from Reese Company to settle an $21,800 account receivable. The note is due in six months. At December 31, Black should record interest revenue of:

a. $0
b. $450
c. $900
d. $1,800

Answer 1

At December 31, Black should record interest revenue of: $545

Step-by-step explanation:

Black Company receives a 10% interest bearing note from Reese Company to settle an $21,800 account receivable.

The amount of the interest per year = 10% x $21,800 = $2,180

At December 31, following 3 months, the interest accrual = $2,180/12 x 3 = $545

Journal entries to record the interest accrual:

Debit Interest receivable $545

Credit Interest revenue $545