Question

Following are transactions for Vitalo Company. Nov. 1 Accepted a $12,000, 180-day, 8% note from Kelly White in granting a time extension on her past-due account receivable. Dec. 31 Adjusted the year-end accounts for the accrued interest earned on the White note. Apr. 30 White honored her note when presented for payment; February has 28 days for the current year. Calculate the interest amounts at December 31st and April 30th.

Answer 1

Answer:

Interest amounts at December 31st = $80

Interest amounts at April 30th = $160.

Explanation:

Total interest amount = $6,000 * 8% = $480

Since this is a time extension, we have 360 days (i.e. 180 * 2 = 360)

Interest amounts at December 31st (Nov. 1 - Dec. 31) = (60/360) * $480 = $80

Interest amounts at April 30th (Jan.1 - Apr. 30) = (120/360) * $480 = $160.

Answer 2

Answer:

Interest earned on December 31 is $160.

Interest earned on April 30 is $320.

Explanation:

Note receivable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest revenue on the note is calculated as: Principal x Interest Rate x Time

In this case, the total interest revenue is $12,000 x 8%/12 x 6 months = $480.

Monthly interest revenue is therefore $480 / 6 months = $80.

Total interest as at December 31 (Nov. 1 - Dec 31): $80 x 2 months = $160.

Total interest as at April 30 (Jan 1 through April 30) = $80 x 4 months = $320.