Question

On September 1, Year 1, Vincent Company loaned $24,000. The note had a 7% interest rate and a one-year term.

Answer 1

Answer:

1. Amount of interest revenue recognized by Vincent Company during Year 1 = 560

2. Amount of interest revenue recognized by Vincent Company during Year 2 = 1120

3. Amount of cash collected by Vincent Company on August 31, Year 2 = 25680

Explanation:

1. Let's review the information given to us to answer the questions correctly:

Amount Vincent Company loaned = US$ 24,000

Interest rate = 7% = 0.07

Term = 1 year = 12 months from September 1st, Year 1 to August 31st, Year 2

2. Calculate the amount of interest revenue recognized by Vincent Company during Year 1.

Amount of interest revenue recognized by Vincent Company during Year 1 = Amount Vincent Company loaned * Interest rate/12 * 4

Replacing with the real values, we have:

Amount of interest revenue recognized by Vincent Company during Year 1 = 24,000 * 0.07/12 * 4

= 560

3.  Calculate the amount of interest revenue recognized by Vincent Company during Year 2.

Amount of interest revenue recognized by Vincent Company during Year 2 = Amount Vincent Company loaned * Interest rate/12 * 8

Replacing with the real values, we have:

Amount of interest revenue recognized by Vincent Company during Year 2 = 24,000 * 0.07/12 * 8

= 1120

4. Calculate the amount of cash collected by Vincent Company on August 31, Year 2.

Amount of cash collected by Vincent Company on August 31, Year 2 = Amount Vincent Company loaned + Interests for one year

Replacing with the real values, we have:

Amount of cash collected by Vincent Company on August 31, Year 2 = 24,000 + (24,000 * 0.07)

Amount of cash collected by Vincent Company on August 31, Year 2 = 24,000 + 1,680

Amount of cash collected by Vincent Company on August 31, Year 2 = 25680