19. A company issues a four-year note receivable for $150,000. Both the stated and effective rates of interest are 10%. Interest payments are made annually. What is the amount of interest revenue to be reported during the first year of the note?
Answer: C
The amount of interest revenue to be reported during the first year of the note is $15,000.
Interest revenue is calculated by multiplying the principal amount of the note by the stated interest rate. In this case, the principal of $150,000 multiplied by the interest rate of 10% results in $15,000 for the first year's interest revenue.
A) $30,000
This option is incorrect because it suggests that the interest revenue is double the actual amount calculated. The interest for one year at a 10% rate on a principal of $150,000 cannot yield $30,000; it would require a principal of $300,000 instead.
B) $3,750
This option is incorrect as it significantly underestimates the interest revenue. To arrive at this figure, one would have to incorrectly apply a much lower interest rate, which does not align with the stated rate of 10%.
C) $15,000
This option is correct as it accurately reflects the calculation of interest revenue. With a principal of $150,000 and an interest rate of 10%, the interest revenue for the first year is indeed $15,000, consistent with proper accounting principles.
D) $60,000
This option is incorrect because it suggests an annual interest revenue that is four times the actual amount. The calculation of interest revenue is based solely on the principal and the stated interest rate for one year, making $60,000 an impossible figure for this scenario.
Conclusion
The correct answer, $15,000, is derived from applying the stated interest rate of 10% to the note's principal of $150,000. All other options misrepresent the calculations or involve incorrect assumptions about the principal or interest rates, thus confirming that only option C is valid in this context.