Delta Company was accruing interest on a note receivable at the end of 2014. The note had principal of $10,000, an interest rate of 8%, and it had been outstanding for three months. Delta should accrue $200 of interest income for 2014.

Question

Quizplus · Accepted Answer

The calculation for interest income is:

Interest income = Principal x Interest rate x Time

where Time is the fraction of the year that the note was outstanding.

In this case, Time = 3/12 = 0.25 (since it was outstanding for three months out of a 12-month year).

Therefore, Interest income = $10,000 x 8% x 0.25 = $200.

Delta should therefore accrue $200 of interest income for 2014.

Delta Company Was Accruing Interest on a Note Receivable at the End