Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2, respectively? Multiple Choice $960 in Year 1 and $0 in Year 2 $0 in Year 1 and $960 in Year 2 $240 in Year 1 and $720 in Year 2 $720 in Year 1 and $240 in Year 2 Next

Question

Cali Pittman

Business

3 July, 12:32

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2, respectively? Multiple Choice $960 in Year 1 and $0 in Year 2 $0 in Year 1 and $960 in Year 2 $240 in Year 1 and $720 in Year 2 $720 in Year 1 and $240 in Year 2 Next

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Answers (1)

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Nina Suarez · Answer 1

The correct answer is $720 in Year 1 and $240 in Year 2 Next.

Explanation:

According to the scenario, the given data are as follows:

Loan Amount = $16,000

Rate of interest = 6%

Time period for first year (Apr - Dec) = 9 months

Time period for second year (Jan - Mar) = 3 months

So, we can calculate the amount of interest by using following formula:

For first year:

Amount of interest (1st year) = $16,000 * 6% * 9 : 12 = $720

Amount of interest (2nd year) = $16,000 * 6% * 3 : 12 = $240