Question

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

Answer 1

Answer:

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