Interest Calculation on $5,900 Note

What will the lender recognize on December 31, 2015, for a $5,900 note with a 10% interest rate?

a. interest payable, $91.

b. interest receivable, $91.

c. interest receivable, $194.

d. interest payable, $194.

Answer:

The correct answer for the interest receivable or payable on the $5,900 note with a 10% interest rate as of December 31, 2015, for a term of 120 days that began on November 5, 2015, is not provided in the options. The accurate calculation results in $139.

Explanation:

The question revolves around calculating the interest receivable or payable on a note with a principal of $5,900, a term of 120 days, and an interest rate of 10%, dated November 5, 2015, with interest recognition due on December 31, 2015. To find the answer, we apply the formula for simple interest: Interest = Principal × rate × time.

Calculating the number of days from the note's date to December 31 gives us 56 days (26 days in November plus 30 days in December). So, the calculation would be:

Interest = $5,900 × 10% × (56/365)

Breaking down the calculation:

Interest = $5,900 × 0.10 × 0.1534 (approximately)

Interest = $903 × 0.1534

Interest = $138.57 (rounded to the nearest dollar is $139)

Therefore, the correct answer is not listed as one of the provided options, as neither $91 nor $194 is accurate. The closest correct option would be interest receivable or payable of $139.