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18 August, 17:10

Terps Company received a promissory note from a customer on October 1, 2019. The principal amount of the note is $25,000; the terms are 8 months and a 6% annual interest. Assuming the accounting period ends on December 31, determine the interest revenue recorded by the company for the year ending on December 31, 2020

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  1. 18 August, 20:02
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    The answer is $3,000

    Explanation:

    Principal is $25,000

    Tenor is 8 months

    Annual interest is 6%

    So the interest rate for 8 months is 4%

    Therefore the monthly interest income is 4% x $25,000

    =$1,000.

    October 1, 2019 through December 31, 2019 is 3 months

    The interest revenue that will be recorded for the year 2019 is $1,000 x 3 months

    =$3,000
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