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10 September, 02:30

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

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  1. 10 September, 02:57
    0
    At December 31, Black should record interest revenue of: $545

    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
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