Question

Rosewood Company made a loan of $8,600 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:

Answer 1

Answer:

Year 1 = $387

Year 2 = $516

Explanation:

Loan has been granted on 1 April in Year 1 i.e. for a period from 1 April to 31 December = 9 months.

Interest for year 1 @6% = $8,600 X $\frac{6}{100} X\frac{9}{12}$

= $387

Interest for year 2 will be from 1 January to 31 December =

$8,600 X $\frac{6}{100} X \frac{12}{12}$ = $516

Therefore interest revenue to be reported by Rosewood Company will be as follows

Year 1 = $387

Year 2 = $516