On December 1, 2017, Boerne Company sold merchandise to a customer for $40,000.

Question

On December 1, 2017, Boerne Company sold merchandise to a customer for $40,000. In payment for the merchandise, the customer signed a 6% note requiring the payment of interest and principal on March 1, 2018. How much interest revenue will the company recognize during 2017? In 2018?

Q2On June 30, 2018, Boerne Inc sold a tractor to a customer, accepting a noninterest bearing note promising payment of $240,000 in five years. The applicable effective interest rate is 7%. What amount of sales revenue would Boerne Inc recognize on June 30 for this transaction?

Explanation / Answer

1.

Number of months in 2017 = December 1, 2017 to December 31, 2017 = 1 month

Interest revenue recognised in 2017 = $40,000 * 6% * 1/12 = $200

Number of months in 2018 = January 1, 2018 to March 31, 2018 = 3 months

Interest revenue recognised in 2018 = $40,000 * 6% * 3/12 = $600

2.

Sales revenue recognised on June 30 = Principal value of note accepted in lieu of tractor = $240,000

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