Q9SE - Horngren'S Financial And Managerial Accounting

Question

Question: A table of notes receivable for 2018 follows:

	Principal	Interest	Interest Period During 2018
Note 1	\( 30,000	6%	6 months
Note 2	\) 12,000	10%	270 days
Note 3	\( 14,000	14%	75 days
Note 4	\) 100,000	7%	10 months

 For each of the notes receivable, compute the amount of interest revenue earned during 2018. Round to the nearest dollar

Step-by-Step Solution

Answer

Answer:

The amount of interest earned:

Note 1- $900

Note 2- $888

Note 3- $403

Note 4- $5,833

Step 1: Definition of note receivable

The notes receivable means the note that is received by the company. The notes receivable are issued by the debtor of the company and the debtor pays interest to the company on the notes.

Step 2: Interest Calculation for Notes Receivable

$$\begin{gathered} \mathbf{Interest} \mathbf{Note} \mathbf{1}\mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time} \mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{6}\mathbf{\%}\mathbf{\times }\frac{\mathbf{6}}{\mathbf{Interest}\mathbf{ }\mathbf{ }\mathbf{Note}\mathbf{ }\mathbf{2}\mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time}\mathbf{ }\mathbf{ }\mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\mathbf{\times }\frac{\mathbf{270}}{\mathbf{365}} \\ \mathbf{=}\mathbf{\$}\mathbf{888} \\ \mathbf{12}} \\ \mathbf{=}\mathbf{\$}\mathbf{900} \\ \mathit{I}\mathit{n}\mathit{t}\mathit{e}\mathit{r}\mathit{e}\mathit{s}\mathit{t}\mathbf{ }\mathbf{ }\mathbf{Note}\mathbf{ }\mathbf{2}\mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time}\mathbf{ }\mathbf{ }\mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\mathbf{\times }\frac{\mathbf{270}}{\mathbf{365}} \\ \mathbf{=}\mathbf{\$}\mathbf{888} \\ \mathbf{Interest} \mathbf{Note} \mathbf{3}\mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time} \mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{14}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{14}\mathbf{\%}\mathbf{\times }\frac{\mathbf{75}}{\mathbf{365}} \\ \mathbf{=}\mathbf{\$}\mathbf{403} \\ \mathbf{Interest} \mathbf{Note} \mathbf{4}\mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time} \mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{100}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{7}\mathbf{\%}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{12}} \\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{833} \end{gathered}$$

Step 3: Total interest calculation for year 2018

	Principal	Interest	Period	Interest
Note 1	$ 30,000	6%	6 Months	$900
Note 2	$ 30,000	10%	270 days	$888
Note 3	$ 14,000	14%	75 days	$403
Note 4	$ 100,000	7%	10 Months	$5,833

The amount of Interest revenue earned during 2018 is $ 8024.