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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

If a note provides for payment of principal of $85,000 and interest at the rate of 6%, will the interest amount to $5,100? Explain.

To determine

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.

Interest on note:

Interest on note is the amount charged on the principal value of note for the privilege of borrowing money. Interest is to be paid by the borrower and to be received by the lender.

To check and explain: Whether interest would be amounted to $5,100, if the principal value of the note is $85,000 and interest rate is 6%.

Explanation

Yes, the interest amount would be $5,100, only if the note has a payable period of 1 year. Since, the interest rate is generally expressed in terms of annual rate, it can be easily identified that here the interest is calculated for one year, which is depicted as follows:

Interest = [

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