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23 October, 09:33

On June 1, Parson Assoc. sold equipment to Arleo and agreed to accept a 3-month, $55,000, 10% interest-bearing note in payment at a time when the prevailing rate of interest for similar transactions was 10%. When the note was collected upon maturity, Parson would recognize interest revenue of:

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  1. 23 October, 10:24
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    Parson would recognize an interest revenue of $1375

    Explanation:

    The quoted interest rate on bond is the annual rate of interest. The bond is for 3 months which means that the interest revenue will be recorded for the 3 months period from June to August and the bond will mature on 31 August.

    The interest revenue to be be recorded on this note is,

    Interest Revenue = 55000 * 0.1 * 3/12 = $1375

    The entry to record the receipt of interest and face value will be,

    Cash 56375

    Interest revenue 1375

    Bonds Receivable 55000
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