ABC Company agreed upon a ten-month, $18,000, 4% interest-bearing note receivabl

Question

ABC Company agreed upon a ten-month, $18,000, 4% interest-bearing note receivable from XYZ Corporation on April 1, 2009 for a sale of a piece of equipment. In other words, ABC gave XYZ the equipment in exchange for a longer-term receivable. Assuming all necessary adjusting entries were made at year end December 31, 2009 and interest will be received upon maturity, the entry ABC makes on the note’s maturity date would include a:

debit to interest revenue for $60

credit to interest receivable for $540

debit to interest expense for $600

credit to note payable for $18,000

The answer is "credit to interest receivable for $540" but I am not sure where they are getting the $540 from, thanks in advance!

Explanation / Answer

answer :

credit to interest receivable for $540 is the correct

explanation interest will be received upon meturity date so the duration from sale of piece of equipment is april 1 2009 to Dec 31 2009

here the duration is 9 months

so calculate interest receivable for 9 months on $18000 notes receivable

=$18000*4/100 =720

interest receivable for 9 m0nths is

$720*9/12=$540

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