A company issues a four-year note receivable for $150,000. Both the stated and effective rates of interest are 10%. Interest payments are made annually. What is the amount of interest revenue to be reported during the first year of the note?

Rationale

The amount of interest revenue to be reported during the first year of the note is $15,000.

The interest revenue for the first year can be calculated by multiplying the principal amount of the note by the stated interest rate. For this note receivable, the calculation is $150,000 multiplied by 10%, resulting in $15,000 of interest revenue.

A ($30,000) YOUR ANSWER

This amount represents an incorrect calculation as it would imply a 20% interest rate on the principal. Given the stated rate is 10%, this choice does not reflect the correct interest revenue for the first year.

B ($3,750) YOUR ANSWER

This figure seems to suggest a miscalculation or misunderstanding of the interest rate application. Calculating 10% of the principal amount of $150,000 yields $15,000, not $3,750, which would equate to a 2.5% interest rate.

C ($15,000) CORRECT

This choice correctly reflects the interest revenue for the first year, as it is calculated by applying the stated interest rate of 10% to the principal amount of $150,000. Thus, $150,000 x 10% equals $15,000.

D ($60,000) YOUR ANSWER

This choice incorrectly suggests an annual interest revenue that is four times the correct amount. It seems to misinterpret the annual payment structure, as it would imply an annual interest rate of 40%, which is not applicable here.

Conclusion

The interest revenue for the first year of a note receivable is determined by multiplying the principal by the stated interest rate. In this case, the calculation shows that $15,000 is the correct interest revenue to report, as it accurately applies the 10% rate to the $150,000 principal. Incorrect options arise from misunderstandings of the interest calculation or incorrect percentage applications.

A company issues a four-year note receivable for $150,000. Both the stated and effective rates of interest are 10%. Interest payments are made annually. What is the amount of interest revenue to be reported during the first year of the note?

The amount of interest revenue to be reported during the first year of the note is $15,000.

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