Question

Rosewood Company made a loan of $9,800 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be:a. $588 and $0b. $0 and $588c. $441 and $147d. $147 and $441

Answer 1

Answer:

c. $441 and $147

Explanation:

The total interest revenue on notes receivable is,

Interest revenue = 9800 * 6% = $588

The note is for one year however it is issued on 1 April. If we prepare the adjusting entry on 31 December, at 31 December of Year 1, we will record the interest revenue for the period from April to December Year 1.

The Interest revenue reported on 31 December Year 1 will be,

• Interest Revenue Year 1 = 588 * 9/12 = $441

Thus, the remaining will be reported on Year 2's statements because it pertains to the period from January to March Year 2.

• Interest Revenue Year 2 = 588 - 441 = $147