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28 February, 11:33

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015.

Related to this note receivable, what amount of interest income would Siebens report on its 2014 income statement?

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  1. 28 February, 11:45
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    Siebens will report $933.33 of Interest Income relating to this note on its 2014 Income Statement

    Explanation:

    Assuming that the year end for the Siebens is on 31 December, there will be an adjusting entry passed on this day under the accrual principle to caclulate and record the interest income on notes Receivable that relates to this year. The interest income for this year can be calculated as:

    Interest Income = 20000 * 0.08 * 7/12 = $933.33

    The journal entry to record this will be

    31 December 2014 Interest receivable $933.33

    Interest Income $933.33
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