If Kettler Company loans $24,000 to Beam Company on March 1, Year 1, and the one-year note carries an interest rate of 7%, how much interest revenue will Kettler recognize in Year 1? How much interest revenue will Kettler recognize in Year 2?
What will be an ideal response?
Kettler will recognize $1,400 in interest revenue in Year 1 and $280 in Year 2.
Interest revenue = Principal × Annual interest rate × Time outstanding
Year 1: Interest revenue = $24,000 × 7% × 10/12 = $1,400
Year 2: Interest revenue = $24,000 × 7% × 2/12 = $280
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