Practice prompt · Q:receivables-notes-credit-losses-and-transfers/effective-versus-stated-interest-001

Say which rate and which balance produce interest revenue

Tests whether the learner computes interest from carrying amount and the effective rate rather than from face and the stated rate.

Updated Sep 11, 2026 Review due Nov 18, 2026

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A three-year note with a face amount of 100,000 carries a stated rate of 3 percent when the market rate for that borrower is 9 percent. The note was recorded at 84,812.23.

Two rates and two balances sit in every note, and pairing them wrongly is the common error. The stated rate on the face amount tells you the cash. The effective rate on the carrying amount tells you the revenue.

Choose the best answer. a Interest revenue is 7,633.10, the carrying amount times the effective rate; cash received is 3,000, and the 4,633.10 difference increases the carrying amount. b Interest revenue is 3,000, the face amount times the stated rate. c Interest revenue is 9,000, the face amount times the effective rate. d Interest revenue is 2,544, the carrying amount times the stated rate.

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Answer: a

Choice a. Interest revenue is 84,812.23 times 9 percent; cash is 100,000 times 3 percent; the difference accretes the carrying amount toward face.