ACCT Chapter 5-6 Exam

Uptown Crop Science Corp. has the following information about their inventory: During October, Rain Uptown sold 400 units at a price of $20.00. What is the dollar amount of the ending inventory on October 31st, 2016 using the First-in, first-out (FIFO) inventory cost method? (Do Not enter dollar signs.)

$ 8,650 (350 x 14)+(250 x 15) because its asking for the ending inventory. The last left after FIFO

Shirley, Inc. had the following information regarding 2016 inventories: Units Price Amount January 1 2016 Inventory 1,000 $6.00 $ 6,000 March 8, 2016 purchase 2,000 $7.00 14,000 August 17, 2016 purchase 3,000 $8.00 24,000 Total 6,000 $44,000 During 2016, Shirley sold 2,000 units for $10.00 each. Shirley adopted the LIFO method with a periodic inventory system. Determine cost of ending inventory.

(1000 x 6)+(2000 x 7)+(1000 x 8)

The Red Raider Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $31,200 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $41,000. Services provided during September on account $57,000. During the month collections on account were $50,200 and accounts written off as bad debts were $3,000. At year-end, the company ages its receivables to the following aging schedule: Age of AccountsARCurent PeriodPrevious Period$35,000$26,000$9,000Estimated % Uncollectible5%50% What is the ending balance in the Allowance for Uncollectible Accounts?

(26,000 * 5%) + ( 9,000 * 50%) 1,300 +4,500 5800 = AUA

The Red Raider Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $31,200 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $41,000. Services provided during September on account $57,000. During the month collections on account were $50,200 and accounts written off as bad debts were $3,000. At year-end, the company ages its receivables to the following aging schedule: Age of AccountsARCurent PeriodPrevious Period$35,000$26,000$9,000Estimated % Uncollectible5%50% What amount will Red Raider report as Bad Debt Expense on the Income Statement?

(26,000 * 5%) + ( 9,000 * 50%) 1,300 +4,500 5800 = AUA Doubtful Accounts $4,400 - write off -$3,000 = 1,400 5,800 - 1,400 = 4,400

On November 1st, Chipotle Corp. received a $2,000 note from a customer with a rate of 9% interest that is due in six months. The adjusting entry on December 31st for this note receivable would be: CA = Cash NR = Notes Receivable AP = Accounts Payable IR = Interest Revenue IREC = Interest Receivable UR = Unearned Revenue A Debit to: and a Credit to: for $:

-IREC = Interest Receivable -IR = Interest Revenue - $30 because $2,000 x %9 = 180. Divide 180 by six ( because six months) = 30. 30 for 1 month

The Maryam Corp. reported the following information for the month of September 2015: During September, Maryam Corp. sold 200 units. The company uses the periodic inventory system. Using the first-in, first-out (FIFO) method of inventory accounting, compute the cost of goods sold. (Do Not enter dollar signs.)

100 units x $30 + 50 units x $32 + 50 units x $33 = 6,250

During 2016, LiLi Co. had the following information about inventory and purchases: Units Price Amount January 1, 2016 Inventory 4,000 $2.00 $ 8,000 March 8, 2016 purchase 3,000 $4.00 12,000 August 17, 2016 purchase 2,000 $6.00 12,000 Total 9,000 $32,000 During 2016, LiLi sold 5,500 units for $9.00 each. LiLi has adopted the FIFO method with a periodic inventory system. Determine the Gross Profit for Lili in 2016.

4,000 x 2 + 1,500 x 4 = 14,000 5,500 x 9 = 49500 49,500 - 14,000 = 35,500

On April 1, 2017, Clare Barry received a 5%, $600,000 note from John Edwards, a customer. The note is due on September 30, 2017. Clare Barry's entry on September 30 2017 to record the payment received would include a debit to Cash for $ [a].

615,000 .05 x 600,000 X 6/12 =

The Indiana Jones Corp. reported the following information for the month of September 2015: During September, Indiana Jones Corp. sold 200 units. The company uses the periodic inventory system. Using the weighted-average method of inventory accounting, compute the cost of the ending inventory. (Do Not enter dollar signs.)

9,600 / 300. x 100

The Walking Dead Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $22,400 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $20,000. Services provided during September on account $45,000. During the month collections on account were $34,400 and accounts written off as bad debts were $2,000. The Walking Dead estimates that 8% of accounts receivable will default (not pay). Do not use the dollar sign or a decimal in your answer. Commas are ok. What is the September 30th balance in Allowance for Uncollectible Accounts?

Accounts Receivable,September 22400 Add: Services provided on account 45000 Less: Collections on account(34400) Less: Accounts written off(2000) Accounts Receivable,September 30 31000 Estimated uncollectible amount 2480 = 31000*8% 2480

The Walking Dead Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $22,400 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $20,000. Services provided during September on account $45,000. During the month collections on account were $34,400 and accounts written off as bad debts were $2,000. The Walking Dead estimates that 8% of accounts receivable will default (not pay). Do not use the dollar sign or a decimal in your answer. Commas are ok. The dollar amount for the bad debt adjustment will be

Accounts Receivable,September 22400 Add: Services provided on account 45000 Less: Collections on account(34400) Less: Accounts written off(2000) Accounts Receivable,September 30 31000 Estimated uncollectible amount 2480 = 31000*8% Less: Allowance for Doubtful Accounts balance 2400=4400-2000 2480 - 2400 Dollar amount for the bad debt adjustment 80

Holly, Inc. has the following information regarding inventories for the quarter ending December 31, 2016: Holly sold 1,500 units during the quarter at a price of $10.00 per unit. Holly uses the weighted average method of inventory costing with the periodic inventory system. Determine the cost of goods sold for the quarter ending December 31, 2016. (Do Not enter dollar signs.)

Average Cost per unit = Cost of Goods sold available for sales / total units. 16,600/ 2500. = 6.64 Cost of Goods sold ( 1,500 x 6.64) = 9960

Juan, Inc. had the following balances in accounts for the year ending December 31st: Accounts receivable: $34,800 (Dr.) Allowance for Doubtful Accounts: $220 (Cr.) Juan, Inc. estimates that 3% of accounts receivable will default (not pay). What amount will Juan report as Bad Debt Expense on the income statement?

Bad debt Expense = ending AuA - Unadjusted AuA 34800 * .03 = 1,044 Doubtful accounts = 220 1,044 - 220 = 824

New Navy Stores Co. had Merchandise Inventories of $150,000 on January 1st. During the year, the company purchased $230,000. A count of the inventory on December 31st, found total inventories remaining of $105,000. What is the Cost of goods sold for the year?

Beggining inventory + Net purchases - Ending inventory = COGS $150,000 + $230,000 - $105,000 = $275,000

The following is from Spiderman Inc.'s financial accounts. Purchases $190,000 Transportation-In $11,000 Inventory, January 1st, $25,300 Inventory, December 31st $27,900 Purchase Returns and Allowances $6,200 How much will Spiderman report as its cost of goods sold on its income statement?

Begining inventory $25,300 + Purchases $190,000 +Freight In (transportation) $11,000 -Ending inventory $27,900 -Returns and allowances $6,200 = $192,200

The Raider Company had a fire on April 1st, 2018, which completely destroyed its inventory. No physical inventory count had been taken since December 31, 2017. The company's books showed the following balances at the date of the fire: Net Sales $160,000 Inventory, Dec. 31, 2017 40,000 Net Purchases 130,000 Gross profit 20% Determine the cost of inventory destroyed by fire on April 1, 2018

Beginning inventory + Net purchases - COGS = Ending inventory. $40,000 + $130,000 - ??? = Ending inventory COGS = Net sales x Gross profit 160,000 x 20% = 32,000 $160,000 - $32,000 = 128,000 COGS = 128,000 40,000 + 130,000 - 128,000 = 42,000

Kathy Corp. had a Merchandise Inventory account with a balance on January 1, 2016 of $715,000 and the cost of goods purchased was $230,000. The cost of goods sold for 2016 was $520,000. What is the December 31, 2016 ending inventory?

Beginning inventory + Net purchases - Ending inventory = Cost of goods sold Beginning inventory + Net Purchases - Cost of Goods sold = Ending Inventory 715,000 + 230,000 - 520,000 = 425,000

During 2016, Roy Ltd. had a beginning inventory of $45,000, ending inventory of $88,000, and a cost of goods sold of $105,000. What was Roy's 2016 cost of goods purchased? Do not use the dollar sign or a decimal in your answer.

Beginning inventory + Net purchases - Ending inventory = Cost of goods sold Net purchases = Cost of goods sold - Beginning inventory + Ending inventory 105,000 - 45,000 + 88,000 = 148,000

On December 31, 2018, Bonsai Boards has 15 Maple Sleds at a cost of $1,200 per unit (total inventory of $18,000). The current replacement cost (value) of the inventory is $1,100 per unit (total value of $16,500). Based on the LCM rule, what adjustment, if any, is needed? COGS 100 Inventory 100 COGS 1,500 Inventory 1,500 Inventory 1,500 COGS 1,500

COGS 1,500 Inventory 1,500

Juan, Inc. had the following balances in accounts for the year ending December 31st: Accounts Receivable: $34,8000 (Dr.) Allowance for Doubtful Accounts: $220 (Cr.) Juan, Inc. estimates that 3% of accounts receivable will default (not pay). The journal entry on December 31st to record bad debt expense for the year would be.... Use the following abbreviations for account names: CA = Cash AR = Accounts Receivable BD = Bad Debt Expense ADA = Allowance for Doubtful Accounts SR = Sales Revenue Debit [a] and Credit [b]

Debit [a] BD and Credit [b] ADA

Rick Inc. uses an allowance method to account for their Bad Debts. On September 30th, Rick had a balance in Accounts Receivable of $432,000 and a balance of $25,400 in Allowance for doubtful accounts. During October, Rick decided to write off the account of Carl, Inc. of $3,400. The journal entry to recognize this write-off would be: Use the following abbreviations for account names: CA = Cash AR = Accounts Receivable ADA = Allowance for Doubtful Accounts BD = Bad Debt Expense SR = Sales Revenue Debit [a] and Credit [b].

Debit: ADA Credit: AR

In times of rising prices, which inventory cost method (LIFO or FIFO) reflects the highest: Ending Inventory Cost [a] Cost of Good Sold [b] Net Income [c] Taxes [d]

Ending Inventory Cost [a] FIFO Cost of Good Sold [b] LIFO Net Income [c] FIFO Taxes [d] FIFO

In times of declining prices, which inventory cost method (LIFO or FIFO) reflects the highest: Ending Inventory Cost [a] Cost of Good Sold [b] Net Income [c] Taxes [d]

Ending Inventory Cost [a] LIFO Cost of Good Sold [b] FIFO Net Income [c] LIFO Taxes [d] LIFO

Juan, Inc. had the following balances in accounts for the year ending December 31st: Accounts receivable: $34,800 (Dr.) Allowance for Doubtful Accounts: $220 (Cr.) Juan, Inc. estimates that 3% of accounts receivable will default (not pay). What is the ending balance in the Allowance for Uncollectible Accounts?

Ending balance in allowance for uncollectible account = Ending balance of accounts receivable * estimated % of accounts receivable = 34800 * 3% = $ 1,044

On April 1, 2016, Clare Barry received a 5%, $600,000 note from John Edwards, a customer. The note is due on March 31, 2017. Clare Barry has a December 31st year-end. Clare Barry's entry on March 31, 2017 to record the payment received would include a credit to interest revenue of

Interest revenue = 600000*5%*3/12= $7500

Wolf Inc. made a sale of $10,000 on August 1, accepting a 6-month 12% note. Wolf makes annual adjusting entries. On December 31st, Wolf will make an adjusting entry accruing how much Interest Receivable?

Interest=principal× rate× time. Principal=$.10000. Time=5 months. Rate12% 10,000 * .12* 5/12 = 500 Interest accrued for the periodw

The Lady in Red Corp. reported the following information for the month of September 2015: Date Units Price Amount September 1, 2015 Inventory 100 $30 $3,000 September 9, 2015 purchase 50 $32 1,600 September 18, 2015 purchase 100 $33 3,300 September 27, 2015 purchase 50 $34 1,700 Total 300 $9,600 During September, Lady in Red Corp. sold 150 units. The company uses the periodic inventory system. Using the last-in, first-out (LIFO) method of inventory accounting, compute the cost of goods sold.

LIFO method : In this method those goods are sold first which are purchased last ( i.e. recently ) and the ending inventory is from beginning inventory and earlier purchases. Cost of goods sold = ( 50 * 34 ) + ( 100 * 33 ) = 5,000

On October 1, 2017, Frank Underwood received a 6%, $500,000 note from Claire Barry, a customer. The note is due on March 31, 2018. Frank Underwood's entry on March 31, 2018 to record the payoff of the note would include a debit to Cash for $ ( ).

Maturity value of Note = Amount + Interest = 500000+(500000 x 6%x 6/12) Maturity value of note = 515000 Debit to Cash for = $515000

The Red Raider Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $31,200 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $41,000. Services provided during September on account $57,000. During the month collections on account were $50,200 and accounts written off as bad debts were $3,000. At year-end, the company ages its receivables to the following aging schedule: Age of Accounts AR Curent Period Previous Period $35,000 $26,000 $9,000 Estimated % Uncollectible 5% 50% What is the September 30th net realizable value of Accounts Receivable?

NRV = AR - AUA (26,000 * 5%) + ( 9,000 * 50%) 1,300 +4,500 5800 = AUA AR = 35,000 35,000 - 5,800 = 29,200

The Walking Dead Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $22,400 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $20,000. Services provided during September on account $45,000. During the month collections on account were $34,400 and accounts written off as bad debts were $2,000. The Walking Dead estimates that 8% of accounts receivable will default (not pay). Do not use the dollar sign or a decimal in your answer. Commas are ok. What is the September 30th net realizable value of Accounts Receivable?

NRV = Ending AR - AUA Beggining AR 22400 + services on account 45,000 - collection on account 34,400 -write offs 2000 = 31,000 AUA = Ending AR * 8% = 2,480 AR - AUA = 28,520

Juan, Inc. had the following balances in accounts for the year ending December 31st: Accounts receivable: $34,800 (Dr.) Allowance for Doubtful Accounts: $220 (Cr.) Juan, Inc. estimates that 3% of accounts receivable will default (not pay). The net realizable value of Accounts Receivable on the Balance Sheet will be: Do not use the dollar sign or a decimal in your answer. Commas are ok.

Net Realizable value = Ending AR - Estimated Ending AUA Ending AR = 34,800 Estimated Ending AUA = 1,044 AR- AUA = 33,756

The McDermott Company showed the following balances on December 31st. Transportation-out 3,000 Purchases 130,000 Purchases returns & allow. 2,000 Transportation-in 1,600 Selling expenses 50,000 Administrative expenses 30,000 What were the net purchases for the year?

Purchases 130,000 - Purchases returns & allow. 2,000 + freight in transportation 1,600 = Net purchases 129,600

At Dec. 31, 2018, Ending Inventory for ABC, Inc. was overstated by $8,000. What are the effects on the following accounts? Revenue [a] Expenses [b] Net Income [c] Assets [d] Liabilities [e] Equity [f] (Overstated, Understated, or Correct)

Revenue [a] Correct Expenses [b] Understated Net Income [c] Overstated Assets [d] Overstated Liabilities [e] Correct Equity [f] Overstated

Alien Shirt Co. has the following information regarding its 2017 inventories: During 2017, Alien sold 8,000 units at a selling price of $12.00 per unit. Alien has adopted a last-in, first-out (LIFO) method of accounting for inventories. What is Alien's Gross Profit for 2017? $

Sales = 8,000 units x $12.00 = $96,000 Cost of goods sold = $81,285.00 Gross Profit = Sales - Cost of goods sold Gross profit = $96,000 - $81,285 = $14,715

A company uses the allowance method to recognize bad debts from its customers. The entry required to recognize the bad debt expense will have what effect on the following elements of the financial statements? Use these abbreviations: Use I for Increase Use D for Decrease Use NC for Not change Total Assets will [a], Net Income will [b]

Total Assets will [a], D Net Income will [b] D

A company uses the allowance method to recognize bad debts from its customers. The entry required to write off uncollectible accounts will have what effect on the accounting equation? Use the following abbreviations: Use I for Increase Use D for Decrease Use NC for Not change Total Assets will [a], Total Liabilities will [b], Total Owners' Equity will [c].

Total Assets will [a], NC Total Liabilities will [b], NC Total Owners' Equity will [c]. NC

Raider sold goods costing $35,000 to Texas Company FOB Shipping Point on September 1. The goods shipped on September 7. The goods arrived at Texas Company on September 15. Texas paid on September 20. Texas Company is responsible for the shipping charge. True False

True

Raider sold goods costing $40,000 to Waco Company FOB Destination on September 30. The goods shipped on October 4. The goods were received by Waco Company on October 8. Waco paid on October 25. Raider is responsible for the shipping charge. True False

True

Redford Oil, Inc. is a wholesaler of oil products with the following inventory data for 2017: During 2017, Redford sold 200,000 units of product with total revenues of $18,000,000. Redford has adopted the weighted average method of accounting for its inventories. Determine Redford's 2017 gross profit or loss. (Do Not enter dollar sign.)

Weighted average cost=Total cost/Total units =34,500,000/600,000 =$57.5 per unit Cost of goods sold=57.5*200,000 units =$11,500,000 Hence gross profit=Sales-Cost of goods sold =18,000,000-11,500,000 =6,500,000

The Clooney Co. has an account called Sales Returns and Allowances with a balance of $24,058. What type of account is Sales Returns and Allowances and what is its normal balance? a. Contra-Revenue, Debit balance. b. Revenue, Credit balance. c. Asset, Debit balance. d. Contra-Asset, Debit balance. e. Contra-Revenue, Credit balance.

a. Contra-Revenue, Debit balance.

The Frodo Co. offers their customers a reduction in price for early payment. Frodo would refer to this reduction in price as a: a. Sales discount. b. Purchase allowance. c. Quantity discount. d. Sales allowance. e. Sales return.

a. Sales discount.

An allowance method of accounting for bad debts expense: a. Will increase the cost of goods sold. b. Is the required method when the uncollectible amounts are expected to be material. c. Will result in a contra asset account with a debit balance. d. Is a suggested method for the financial report. e. Can result in reporting higher accounts receivable.

b. Is the required method when the uncollectible amounts are expected to be material.

On January 3rd, a customer returned $1,250 of merchandise that had been purchased with cash to Raider Supplies. Raider's cost of the goods returned was $350. Which journal entry or entries should Raider prepare? a. Sales Revenue 900 Refund Expense 350 Cash 1,250 b. Sales Refunds Payable 1,250 Cash 1,250 Inventory 350 Inventory returns estimated 350 c. Cash 1,250 Sales Refunds Payable 1,250 Inventory returns estimated 350 Inventory 350 d. Sales Revenue 1,250 Cash 1,250

b. Sales Refunds Payable 1,250 Cash 1,250 Inventory 350 Inventory returns estimated 350

Which of the following is TRUE about the accounting for bad debts? a. Bad debt expense is a prepaid expense like Prepaid Rent. b. The allowance method for bad debts is acceptable for financial reporting. c. The Allowance for Doubtful Accounts normally has a debit balance. d. Bad debt expense is normally a contra-revenue account similar to Sales Discounts. e. The direct-write-off method for bad debts is acceptable for financial reporting when material write-offs of accounts are expected.

b. The allowance method for bad debts is acceptable for financial reporting.

Gap, Inc. received a request from a customer to reduce the invoice price of goods because the goods were damaged in shipment. This type of request is recorded as credit to Accounts Receivable and a debit to: a. Cash b. Sales Returns and Allowances c. Retained Earnings d. Sales Discounts e. Sales Revenues

b. Sales Returns and Allowances

Evan Corp. had January 1, 2015 inventories of $55,000, purchases of $48,000, transportation-in of $15,000, and December 31, 2015 inventories of $20,000. The company uses the periodic inventory system. What was the 2015 cost of goods sold for Evan? Do not use the dollar sign or a decimal in your answer.

beggining inventory 55,000 purcahses + 48,000 + 15,000 - 20,000 = 98,000

On Oct. 10, Red Raider Jewels sold merchandise costing $3,000 and accepted the customer's First Bank MasterCard. At the end of the day, the First Bank MasterCard receipts were deposited in the company's bank account. First Bank charges a 4% service fee for credit card sales. What journal entry is required? a. Cash 2,880 Sales Discount Expense 120 Sales Revenue 3,000 b. Cash 3,000 Credit Card Discount Expense 120 Sales Revenue 2,880 c. Cash 2,880 Credit Card Discount Expense 120 Sales Revenue 3,000 d. Cash 3,000 Sales Discount Expense 120 Sales Revenue 2,880

c. Cash 2,880 Credit Card Discount Expense 120 Sales Revenue 3,000

Which of the following statements is FALSE? a. Allowance for doubtful accounts is a contra account that is used to reduce accounts receivable to its net realizable value. b. Bad Debts expense is debited and Allowance for doubtful accounts is credited at the end of the period to recognize bad debts under the allowance method. c. The reason the allowance method of recognizing bad debts is used is primarily because it recognizes higher amount of Accounts receivable on the balance sheet than the direct method. d. Because the allowance method results in better matching, accounting standards require its use rather than the direct write-off method, unless bad debts are immaterial. e. An aging schedule typically categorizes the various accounts by the length of time each invoice is outstanding.

c. The reason the allowance method of recognizing bad debts is used is primarily because it recognizes higher amount of Accounts receivable on the balance sheet than the direct method.

Mina Corp. has a policy of encouraging customers receiving goods that were in any way damaged in shipment to send them back to the company. Mina would refer to this type of transaction as a: a. Sales allowance. b. Purchase discount. c. Sales return. d. Sales discount. e. Purchase return.

c. Sales return.

Raider sold goods costing $40,000 to Waco Company FOB Destination on September 30. The goods shipped on October 4. The goods were received by Waco Company on October 8. Waco paid on October 25. When should Raider recognize the revenue from the sale? a. October 25th b. October 4th c. October 8th d. September 30th

d. September 30th

Raider sold goods costing $35,000 to Texas Company FOB Shipping Point on September 1. The goods shipped on September 7. The goods arrived at Texas Company on September 15. Texas paid on September 20. When should Texas Company record the purchase? a. September 15th b. September 1st c. September 20th d. September 7th

d. September 7th

Which of the following accounts normally has a credit balance? a. Sales returns. b. Sales discounts. c. Transportation-in. d. Allowance for uncollectible accounts. e. Purchases.

d. Allowance for uncollectible accounts.

On July 1, 2017, Nathan Company received a $20,000 promissory note from Dylan Company. The annual interest rate is 8%. Principal and interest are paid in cash at the maturity date of June 30, 2018. If Nathan's fiscal year ends September 30, 2017, the adjusting entry needed is: CA = Cash AR = Accounts Receivable NR = Notes Receivable AP = Accounts Payable NP = Notes Payable IREC = Interest Receivable IP = Interest Payable IE = Interest Expense IREV = Interest Revenue debit: credit:

debit: IREC = Interest Receivable credit: IREV = Interest Revenue`

Which of the following accounts normally has a debit balance? a. Purchase Discounts b. Sales Revenues c. Retained Earnings d. Purchase Returns and Allowances e. Sales Returns and Allowances

e. Sales Returns and Allowances

Seth Corp. sold merchandise to Kelly Corp. on November 1st, for $150,000, and accepted a promissory note for payment in the same amount. The note has a term of 3 months and a stated interest rate of 8%. Seth' accounting period ends on December 31st. What amount should Seth recognize as interest revenue on the maturity date of the note, which is January 31st of the following year?

sales on account = $150,000 Note receivable accepted for the sale amount. Note receivable = $150,000 maturity period = 3 months Interest rate = 8% interest revenue to be recognized on Dec 31 i.e. at the year end = Note receivable x Interest rate x 2/12 = 150,000 x 8% x 2/12 = $2,000 On jan 31, interest revenue will be recognized for 1 month Interest revenue to be recognized on the maturity oof the note = Note receivable x Interest rate x 1/12 = 150,000 x 8% x 1/12 = 1000