Question

DeKalb Company made a loan of $6,000 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 DeKalb would report in Year 1 and Year 2, respectively would be

Answer 1

Answer:

Interest revenue year 1   $270

interest revenue year 2  $  90

Explanation:

To solve for the interest revenue we have to do:

principal x rate x time

being rate and time express in the same metric

As the rate is annual then, time should be expressed as the portion of the year.

Year 1

time: From April 1st to Dec 31th -->9 months

6,000 x 0.06 x 9/12 = 270 interest revenue

Year 2

time: From Jan 1st to March 31th --> 3 months

6,000 x 0.06 x 3/12 = 90 interest revenue

Answer 2

Answer:. The interest revenue that will be recorded in year 1 is $270.

The amount of interest revenue that will be recorded in year 2 is $90

Explanation:

Firstly, it is important to note that year 1 starts from April 1st to December 31st which is a period of 9 months and year 2 commences from January 1st of the succeeding year down to March 31st which is a period of 3 months.

Applying the formula for simple interest:-

(P × R × T)/100

Where P = Principal

R = Rate

T = Time (in years)

Since, year 1 is basically a period of 9months (April 1st to December 31st), we will convert it to years before solving:

12months ----- 1 year

9months ------ ? year

= 9/12 × 1

= 3/4 years

(6000 × 6 × 3)/(100 × 4)

= $270 will be recorded in the year 1

Year 2 is a period of 3 months (January 1st to March 31st)

Converting 3 months to years will give 1/4 years

(6000 × 6 × 1)/(100 × 4)

= $90 will be recorded in year 2