Hi! Could you explain why this answer is wrong and what the correct answer is? T

Question

Hi! Could you explain why this answer is wrong and what the correct answer is? Thanks!

Required information SB On November 1, 2017, Salem Corporation sold.. [The following information applies to the questions displayed below. On November 1, 2017, Salem Corporation sold land priced at $520,000 in exchange for a 6%, six-month note receivable. MC Qu. 163 Assuming the maker of the note defaults on... Assuming the maker of the note defaults on May 1, 2018, Salem will record on this date Multiple Choice An accounts receivable in the amount of $520,000, as well as interest revenue of $10,400. An accounts receivable in the amount of $520,000, as well as interest expense of $15,600. An accounts receivable of $520,000 from the maker of the note. An accounts receivable in the amount of $535,600, as well as interest revenue of $10,400

Explanation / Answer

D.An account receivable in amount of $535,600 , as well as interest revenue of $10,400.

This is because upon default the total amount due from the person will be:

$520,000 + ($520,000 * 6% *1/2)

=>$535,600.

but interest revenue relating to two months of november and december will be recognised in the income statement of the year ending december 31,2017.

accordingly interest revenue of 4 months i.e form january to april 2018 is to be recognised now,

which is calculated as $520,000 * 6% * 4/12 =>$10,400.

Please note that we will have an interest revenue but not an interest expense out of this transaction, since the notes are receivable by Salem corporation.

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