Question

On July 1, 2018, Empire Inc. lends $13,200 to a customer and receives a 10% note due in two years. Interest is due in full on July 1, 2020, the due date of the note. What is the amount of Interest Revenue that will be reported on Empire’s income statement for the year ended December 31, 2018?

Answer 1

Answer:

The interest revenue to be reported on 31 December 2018 is $660.

Explanation:

Under the accrual or matching principle, the revenues and expenses for a period are matched and are recorded in that particular period. The note will pay interest at maturity. However, it will accrue interest evenly through out its life. The interest revenue to be recorded on December 31,2018 will be the interest revenue that relates to the period from July 2018 to December 2018 (6 months).

Interest revenue to be reported on December 31, 2018 is:

Interest revenue = 13200 * 0.1 * 6/12 = $660